Publicly traded companies – New tax rule for options granted after June 30, 2021

Published on: December 3, 2020
Subjects:  Executive compensation, Boards of directors and governance

After two failed attempts, Justin Trudeau’s federal government followed through on its plan to change the tax treatment of stock options for publicly traded organizations in the November 30, 2020 economic statement.

Although few details were provided with this statement, some crucial clarifications were issued:

  • The new rule will take effect for options granted on or after July 1, 2021
  • The annual limit allowed for the current favourable treatment would be $200,000 (number of options x price per share on the date of grant), and would be determined as of the grant date. When the proposed amendment was filed in 2019, this was to be applied instead based on vesting dates. At this time, it is not clear from the statement whether this is a change in intent
  • In addition to Canadian-controlled private corporations (CCPCs), corporations (including publicly traded companies) with annual revenues below $500 million will be exempt and will continue to receive favourable treatment

Tax rules are only one input in the choice of compensation components. The business strategy and employee attraction and retention issues are as or more important. We remain at your disposal to discuss the advantages and disadvantages of using stock options in your total compensation strategy.

We will keep you informed of clarifications as they become available. In the meantime, we invite you to consult the full text of the Economic Statement.

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