In April we reported on the Considerations for Exercising Stock Options, which included an outline of the proposed changes to the taxation structure on stock option benefits announced in the 2019 Federal Budget. On June 17, 2019, the federal government released the Notice of Ways and Means Motion to amend the Income Tax Act, a draft legislation providing further clarification on the intended changes:
- The proposed $200,000 CAD annual limit for tax-preferred treatment has now been confirmed.
- Employee stock options above the limit will be subject to the new employee stock option tax rules.1
- The new rules will apply to employee stock options granted on or after January 1, 2020.2
- Employee stock options for Canadian Controlled Private Corporations (CCPCs) will be exempted.
- Start-ups, emerging companies and other growing businesses that meet certain prescribed conditions will also be exempted.
One of the biggest concerns for most organizations was the stipulation that these changes would impact "large, long-established, mature firms" and the fact that the "prescribed conditions" exempting smaller companies have not yet been defined. The Department of Finance is asking for input into the characteristics of companies that should be considered "start-up, emerging and scale-up" in order to determine the prescribed conditions – the deadline for comment submissions is September 16, 2019.3
In anticipation of the new rules, issuers should be prepared to track stock option grants above the cap separately from those eligible for deduction in the new year.
To see an example of how stock option taxation will work under the proposed new legislation, download Taxation of Stock Option Benefit.
Stay tuned for more updates as the details become available. In the meantime, contact your Relationship Manager if you have any questions around your stock option administration.
1, 2, 3 Government of Canada to Make Tax System Fairer, Launches Consultations on Stock Options.
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