As previously announced in the 2019 Budget, on June 17, 2019, Finance Minister Bill Morneau implemented a Notice of Ways and Means Motion in the House of Commons with respect to the taxation of stock options.
Stock options give employees the right to acquire shares of their employer at a designated price, as an alternative form of compensation. Stock option compensation can provide employees with a preferential tax treatment in some cases. In fact, employees are required to include in their income a taxable benefit when they exercise a stock option granted by their employer and acquire shares pursuant to the terms of the stock option plan. In some cases, when the employer is a Canadian-controlled private corporation (CCPC), tax on the stock option benefit can be deferred until the shares are disposed of. Irrespective of the timing of taxation of the stock option benefit, employees may sometimes benefit from a preferential tax treatment on the stock option benefit. In certain circumstances, for federal tax purposes, employees may claim a deduction equal to 50% of the stock option benefit. When this preferential treatment applies, the effective tax rate on the stock option benefit is equal to the tax rate applicable to capital gains.
With the coming changes to the federal legislation resulting in the narrowing of the preferential tax treatment of employee stock option plans, it may be advisable to set up and/or accelerate the issuance of large stock options to benefit from the current preferential tax treatment.
About the Author:
Aaron P. Belcher, CPA, CGA, is a Tax Specialist at Crowe BGK
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Éloïse Lafortune Viger, Atorney, is a Tax Specialist at Crowe BGK
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Sam Lackman, CPA, CA, is a Senior Tax Manager at Crowe BGK
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Isabelle Nadeau, B.C.L., LL.B., LL.M. Tax, is a Partner at Crowe BGK
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