Tag Archives: Employee Stock Options

Stock Option Taxation Update

The newly elected federal Liberal government ran on the promise of several personal income tax reforms. The majority of the personal income tax reforms promised by the Liberals focus on addressing income inequality between high-income earners and the middle class – as evidenced by the proposed high-income tax bracket, the reduction in the Tax Free Savings Account contribution limit, the removal of family income splitting, and an over-haul of the current tax treatment of stock-options.

Currently, the rules relating to employee stock option taxation in Canada, generally provide for no tax payable at the time that options are granted and only result in the employee recognizing 50% of the benefit or gain arising from the exercise of the qualifying stock options issued by public companies. This amount is taxed in the year of such exercise. Stock options issued by a Canadian-controlled private company (CCPC), provided certain conditions are met, are eligible for a further benefit in that the tax payable by the employee is deferred until the employee disposes of the shares acquired through the stock option. The result is a “capital-gains” like tax treatment of the increase in the value of the shares. This treatment is implemented by way of a deduction from employment income rather than taxing the stock options as a capital gain.

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