Executives who get paid with large allocations of stock options will owe more in taxes under changes announced by the federal government in Budget 2019.
Under current rules, employee stock option benefits are taxed at half the normal rate of personal income — the same rate as capital gains. Under changes made in Budget 2019, there will now be a $200,000 annual cap on stock option grants that get the preferential treatment.
However, this change only applies to large, established companies. Ottawa plans to exclude start-ups and rapidly growing businesses from the cap in order to allow them to use potentially lucrative stock options as a tool to attract and reward employees without necessarily larger salaries.
In Budget 2019, the federal government said the rationale behind the preferential tax treatment of employee stock options is to support younger and growing businesses, and that it does not believe that they should be used as compensation for executives of large, mature companies.
The government noted the change to the taxes on stock options will only apply to options granted in the future and will not apply to those granted before Budget 2019 was unveiled on March 19 of this year.
