On June 17, 2019, the Canadian government introduced draft tax legislation that places limitations on the 50% deduction that applies to stock options granted on or after January 1, 2020 by corporations other than CCPCs ( i.e. Canadian controlled-private corporations) that are not "start-ups, emerging or scale-up companies", as well as mutual fund trusts.

Currently, an employee is entitled to deduct, for Canadian tax purposes, an amount equal to one-half of the stock option benefit arising on exercise (i.e., the option spread), without limitation, provided certain conditions are met. As a result of the proposed legislation, Canadian employees of companies that are not "start-ups, emerging or scale-up companies" will be subject to a $200,000 annual cap on the favorable tax treatment available to employees exercising employee stock options.

If enacted, the draft legislation may permit employees and employers to claim a tax deduction for any options granted in excess of the $200,000 limit. However, the deduction may be available only if the employer elects to notify the employees, in writing, at the time of the grant that the options will be non-qualified. This election cannot be made retroactively and likely would be unavailable to a foreign parent corporation currently granting options to employees of its Canadian subsidiary.