Update: Proposed changes to employee stock option tax rules delayed
On December 19, 2019, the federal government announced that the proposed changes to the tax treatment of employee stock options would not come into force on the previously proposed date of January 1, 2020. The proposed changes to the tax treatment of employee stock options were summarized in the July 2019 edition of News & Views and would limit the use of the current employee stock option tax regime for employees of large, established companies.
On June 17, 2019, the federal Minister of Finance tabled a Notice of Ways and Means Motion to implement the new limitations. Stakeholders were consulted for input on the characterization of companies that should be considered “start-up, emerging, and scale-up companies”, as these corporations would not be subject to the new employee stock option tax rules.
Although the consultations closed on September 16, 2019, the government continues to review stakeholder input against the proposed new regime, and as a result, the proposed changes to the tax treatment of employee stock options did not come into force on the previously proposed date of January 1, 2020. The government has confirmed that it will announce further details of this measure, including the new coming-into-force date, in the 2020 federal budget.
The delay in the coming-into-force date will provide organizations with greater time to review and plan for the new employee stock option tax rules. As part of its review and planning, some organizations may wish to consider alternative forms of incentive-based compensation. Morneau Shepell’s compensation consulting practice, with its extensive experience in incentive program design and stock option administration, can assist clients in updating incentive programs to achieve their goals.