Tax changes to employee stock options were supposed to come into effect on January 1, 2020, and thanks to feedback collected from Canadian businesses in a consultation that ended in September, the implementation of these measures has now been delayed. Tax and compensation planning should take place before these new rules come into effect.
Right before the holidays, the government quietly announced that revised plans would be included in the 2020 budget and would not be in effect on January 1, 2020 as intended. The goal cited? To give individuals and businesses time to review and adjust to the new rules – but the date when they’ll be revisited in the next federal budget has yet to be announced.
As we previously reported, the new measures were originally presented in a June 2019 Notice of Ways and Means Motion which introduced draft legislation to implement a $200,000 limitation to the stock options deduction for employees of large, mature, public companies.
Under the proposed new rules, the securities option deduction will only be available to the employee for the first $200,000 of stock options that become vested in the year from any one employer.
As under current rules, the taxable benefit will remain equal to the difference between the value of the shares at the time the option is exercised, and the amount paid. However, where the value of the options vested exceeds $200,000, the securities option deduction will be limited to one-half of the benefit on the first $200,000 of the options exercised.
If you are an advisor with executive clients, it remains important to schedule a tax planning conversation to discuss the impact of these new rules before they take effect. Compensation planning is also important for companies who want to reward their executives before new rules kick in.
Additional educational resources: help Canadians claim their eligible securities option deductions by obtaining your credentials as a DFA-Tax Services Specialist™ .
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