On December 19, 2019, the Department of Finance (“Finance”) announced that it will be delaying the effective date of its previously announced changes to the tax treatment of employee stock options. These proposed changes were to be effective as of January 1, 2020. Finance did not announce a new effective date but stated that the new coming-into-force date will be announced in Budget 2020 and will “provide individuals and businesses time to review and adjust to the new employee stock option tax rules”.
The details of the proposed stock option rules were discussed in detail in one of our earlier blogs. In general, these proposals were to introduce a new annual $200,000 limit on the amount of employee stock options that can vest in an employee in a year and continue to receive tax-preferred treatment (i.e., the 50% deduction) under the current employee stock option tax rules.
The proposals did not apply to “Canadian-controlled private corporations” or to what was called “start-ups, emerging or scale-up companies” that meet certain prescribed criteria. Finance requested feedback on what should constitute a “start-up, emerging or scale-up company” for this purpose and the consultation period on this issue closed on September 15, 2019. Finance stated that it is “carefully reviewing the input received during the consultations to ensure that the new regime meets both of its key objectives” – the key objectives being to make the stock option regime more “fair and equitable” and to ensure that start-ups and emerging Canadian businesses that are “creating jobs” can continue to grow and expand.
The delay is likely a relief (albeit temporary) for a number of Canadian business – particularly, those in the technology sector who were apprehensive that they may not meet the definition of a “start-up, emerging or scale-up” company. The delay is also a relief for many tax advisors as the draft proposals had many technical issues which had not yet been addressed by Finance.