Apr 8, 2019
Employers who use stock options as incentives to attract and retain employees may want to reconsider their recruiting strategies, believes Dov Begun, a partner in Osler’s tax law practice. In a discussion with Julius Melnitzer for Benefits Canada, Dov explains how Canada’s proposed 2019 federal budget may affect businesses.
The proposed budget places a $200,000 cap on employee-held options eligible for deduction under the Income Tax Act, and hinted that options in excess may only be eligible for deduction by the issuing employer. The change could mean significant financial loss for qualifying employees who are not currently restricted by a cap and receive preferential tax rates when an option is exercised.
Dov said the proposal “aligns with the budget’s stated intention to align our treatment of stock options with the treatment accorded them in the U.S. [where] the regime takes away some deductions for employees and allows more or less matching corporate-level deductions.” He believes the change could seriously affect how companies recruit and retain employees in highly-competitive markets. “The proposals could have a material impact on the use of stock options,” Dov said. He suggests employers look at other ways to attract and keep talent “such as share-settled restricted or performance share units.”
The budget says changes are not intended to affect “startups and rapidly growing businesses” only employees of “large, long-established, mature firms,” though it’s unclear how that group will be defined. Stock options granted before the legislative announcement was released remain unaffected.
For more information, read author Julius Melnitzer’s article “Budget’s stock options proposals could have consequences for employers” in Benefits Canada on April 1, 2019.