Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

December 23, 2019
2019-6651

Canada delays proposed changes to employee stock option rules

On 19 December 2019, Canada’s Finance Minister Bill Morneau released an update on the proposed changes to the tax treatment of employee stock options.

The proposals, which were scheduled to come into force on 1 January 2020, have been postponed.

“The Government will announce details on how it intends to move forward with the measure in Budget 2020. The new coming-into-force date, to be announced in Budget 2020, will provide individuals and businesses time to review and adjust to the new employee stock option tax rules.”

The wording of the announcement suggests that changes to the stock option rules, while postponed, will be forthcoming, potentially with changes to the draft legislation contained within the Notice of Ways and Means Motion (NWMM) introduced on 17 June 2019.

The 2019 Federal Budget proposed changes to the taxation of employee stock options in Canada. The proposals were largely centered around placing a limit on the availability of the 50% stock option deduction for employees of large, mature firms while, at the same time, allowing stock options to remain an attractive form of compensation for employees of start- up companies that lack the cash to attract and retain talented staff.

A NWMM was introduced on 17 June 2019.

The proposals are described more fully in EY’s Tax Alert, Canada provides update on proposed changes to employee stock option rules, dated 24 June 2019.

At the time the NWMM was introduced, the Government invited public comment on the characteristics of companies that should be considered to be “start-up, emerging and scale-up companies,” which would be exempt from the changes. The proposals were scheduled to come into force on 1 January 2020; however, the NWMM “died on the order table” when Parliament was dissolved before the federal election.

In its update, the Government announced that the proposals will not come into force on 1 January 2020. The Government also indicated that details on how it intends to move forward will be announced in Budget 2020. The NWMM contained detailed notification and tracking requirements to be carried out by employers granting stock options. Despite the delay, the wording of the release suggests that there will be changes to the existing stock option regime (in other words, it does not appear that the government has decided to change course and abandon the proposals in their entirety).

Seperately, the Government of Quebec stated that it will make it known at a later date whether it will harmonize with the proposed federal measures. Presumably, the Government of Quebec is waiting for further details, which may be announced in Budget 2020. In the event of a harmonization, the changes to the Quebec tax system may be applicable on the same date as set for the federal proposed changes.

This announcement should be a relief for the many companies who may not yet have developed processes to track and notify employees. It is also anticipated that the Government will take advantage of the delayed implementation to address a number of potential inequities contained within the proposals.

Implications

Based upon the assumption that the proposals will apply on a prospective basis, companies planning to grant stock options in 2020 may wish to investigate whether it makes sense to accelerate grants such that they occur prior to Budget 2020.

Companies should continue to monitor developments in this area and be ready to develop notification and tracking systems, which will likely be required under the new proposals.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (Canada), Toronto
  • Lawrence Levin | lawrence.levin@ca.ey.com
  • Edward Rajaratnam | edward.rajaratnam@ca.ey.com
  • Leah Shinh | leah.c.shinh@ca.ey.com
  • Jo-Anne VanStrien | jo-anne.vanstrien@ca.ey.com
Ernst & Young LLP (Canada), Montreal
  • Danielle Laramée | danielle.laramee@ca.ey.com

ATTACHMENT

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2024, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct