Canada is reining in a tax break on employee stock options by introducing a cap that it expects will impact executives of major, established companies.
Stock options in Canada currently get preferential tax treatment, with only half the benefit taxed as income, similar to capital gains. The government will cap the annual use of that benefit at C$200,000 ($150,000) for employees of “large, long- established, mature firms,’’ according to budget documents released Tuesday. The cap wouldn’t apply to startups and won’t impact the vast majority of people receiving stock options.
The stock option benefits “disproportionately accrue to a very small number of high-income individuals,’’ according to the budget. Canada had 2,330 people with incomes over C$1 million who claimed stock option deductions in 2017, and the average claim was C$577,000, the government said.
That deduction by those high-income earners cost the government C$1.3 billion in revenue, accounting for about two-thirds of total deductions.
“The government does not believe that employee stock options should be used as a tax-preferred method of compensation for executives of large, mature companies,’’ according to the budget.
