August 11, 2019

Everything you need to know about the government’s new stock option taxation rules

Proposed rules seek to limit the preferential tax treatment enjoyed by employees receiving stock options. Currently, while these options are essentially income, they are treated like capital gains. In Canada, the capital gains tax is lower than the income tax of most high-income earners. The proposed rules seek to set a cap on the amount than can be deducted. The deduction remains, in part because they are used by start-ups who want to pay employees in lieu of cash. The government does not want to discourage such risk taking. At the same time, they want to limit the use of such instruments as a way for mature companies and already wealthy individuals to avoid income taxes.

“The government says it will be guided by two key objectives: that the employee stock option tax regime becomes fairer and more equitable and that startups and emerging Canadian businesses that are creating jobs can continue to grow and expand.”

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