On March 22, 2016, the Liberal Government delivered its first budget which focuses on the growth of the middle class. As outlined in a previous post on Canadian M&A Law, the Liberals, as part of their election platform, promised to change the taxation of stock options.
Currently, if the required conditions are met, when an executive exercises a stock option, a one-half deduction is available to allow for capital gains-like tax treatment on exercise. The Liberal platform promised to introduce a cap of $100,000 on the amount that can be claimed through this stock option deduction. The Liberals also stated that stock options are a useful tool for start-up companies. Finance Minister Bill Morneau offered some reassurance when he stated in November 2015 that stock options issued under the old regime would continue to be taxed under the old tax regime.
Interestingly, Budget 2016 is silent regarding the taxation of stock options. This means that the stock option deduction will, for the time being, remain the status quo, with no caps or specific exceptions for technology companies or start-ups. On this issue, at least, executives can breathe a sigh of relief (for now). Query whether the promised changes will be announced in Budget 2017 in an effort to reduce the federal deficit from the Finance Minister’s forecast of $29.4 billion for the upcoming year. However, asked if his government might increase options taxes in future budgets, the Finance Minister said: “It’s not in our plan.”