Finance Canada proposes tax increase to stock options, PDAC responds

On June 17, 2019, the Department of Finance Canada (Finance) released public consultation regarding a newly proposed tax treatment for stock options.

According to Finance, the current system of stock options creates tax-preferred benefits for executives of large, mature companies. These benefits are “disproportionately going to a very small number of high-income individuals”. Therefore, the Government announced its intention to move toward aligning the tax treatment of employee stock options with that of the United States for employees of large, long-established, mature firms.

Finance proposed that: “A $200,000 annual limit will apply on employee stock option grants (based on the fair market value of the underlying shares at the time the options are granted) that can receive tax-preferred treatment under the current employee stock option tax rules”.

Finance announced that Canadian-Controlled Private Corporations (CCPCs) will not be subject to the new limitation, and, recognizing that many non-CCPCs have characteristics reflective of start-ups, emerging or scale-up companies, it announced that some non-CCPCs that meet certain prescribed conditions will also not be subject to the new limit.

Finance opened a public consultation seeking input on what characteristics of public companies reflect start-up, emerging, and scale-up companies to inform prescribed conditions and outline what companies will be exempt from the new rules.

PDAC's Recommendation to Finance Canada

Non-CCPCs with revenue below $100M in any of the previous two fiscal years, as reflected in consolidated financial statements for such fiscal years, should be exempt from the newly proposed $200,000 limit.

Read PDAC's Submission