Executive, Beware The Tax Man

The world of executive compensation is a strange one. Not only does it operate at the intersection of corporate, employment, securities and tax law, but the tax rules which apply are vague, have not kept pace with globalisation and other pressures of a changing world, and are designed to give very little comfort that an executive compensation arrangement will be compliant.

Essentially, executive compensation arrangements fall into one of two possible camps and must fit within the relevant rules – those that apply to agreements to issue securities to the employee, such as stock option plans¹, and those where there is no such agreement. Where an executive compensation arrangement does not involve an agreement to issue securities, the employer will usually want it to avoid characterisation as a salary deferral arrangement (SDA). The tax rules that provide exemptions to such characterisation are few, poorly drafted and largely dependent on the Canada Revenue Agency's