The Liberal government is delaying the planned implementation date for their proposed changes to the preferential treatment of employee stock options. The government will announce the new effective date along with details on how it intends to move forward with the proposed measure in the 2020 budget. As a result, the proposed changes to the tax treatment of employee stock options will not come into force on January 1, 2020.
Under the proposed rules, there would be a $200,000 annual limit to employee stock option grants that can receive the tax-preferred treatment. The government’s intention was that employee stock options granted by Canadian-controlled private corporations (CCPCs) will not be subject to the new limit. For more details on the proposed changes, please ask your RBC advisor for our article, “Liberal government launches consultations on employee stock options”.
On June 17, 2019, the government tabled a Notice of Ways and Means Motion signaling their intention to move forward with the proposed changes. They provided a consultation period to specifically seek input on the characteristics of companies that should be considered start-up, emerging, and scale-up companies, as those companies would not be subject to the new rules. The consultation period ended on September 16, 2019.
On December 19, 2019, Bill Morneau, the Finance Minister, announced that the government is reviewing the input they received during the consultation period and will announce the new effective date in the 2020 budget. The government reiterated their intention to move forward with changes to limit the preferential tax treatment of employee stock options for high income individuals employed at large, long-established, mature firms.
This implementation delay will provide individuals and businesses time to review and adjust to the new rules. Specifically, businesses that may be affected by the changes will have more time to consider changes to their employee compensation plans to factor in the annual $200,000 limit or even consider granting additional stock options prior to the new effective date being announced.