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Canada’s Finance Minister Clarifies Timing of Tax Proposals Relating to Stock Options

Author(s): Hemant Tilak, Dov Begun, Patrick Marley

Nov 20, 2015

Earlier today, the Canadian Government released its Update of Economic and Fiscal Projections 2015.

In its election platform, the government had proposed to limit the tax benefits afforded to employee stock options under the Income Tax Act (Canada) by imposing a cap that would only apply to employees with over $100,000 in annual stock option gains.

Under the current tax rules, an employee who acquires shares upon the exercise of an employment stock option is allowed a tax deduction of 50% of the employment benefit (that is, the excess of the fair market value of the share acquired over the exercise price paid by the employee to acquire the share) provided that certain other conditions are met. The effect of this deduction is to tax the stock option benefit at half the rate that would otherwise apply to ordinary employment income.

During the briefing today, the Honourable Bill Morneau, Minister of Finance, stated that, although details of the proposal remain to be developed “in the next few months,” any changes to the tax rules relating to employment stock options will only affect stock options issued after a decision is made. Employment stock options issued prior to that time will remain subject to the current taxation regime and should not be impacted by any such changes.

Osler will prepare a detailed Update on any changes to Canada’s tax rules related to employment stock options once they become available.

Please contact any member of our National Tax Group to discuss the taxation of employee stock options or other tax matters.