In Canada’s 2019 Federal Budget, the Government announced
its intent to limit the use of the current employee stock option
tax regime that results in preferential personal tax treatment for
certain employee stock options. Under the existing rules, an
employee is entitled to deduct one-half of the amount of the stock
option benefit (the “Deduction”) in
respect of employee stock options that meet certain tests,
effectively resulting in the benefit being taxed at 50% of ordinary
income tax rates. The Government announced that the Deduction
would be limited to an annual cap of $200,000 (based on the fair
market value of the underlying shares at the time of grant) on
stock options granted to an employee that vest in a particular
year. The cap on the availability of the Deduction was to apply
only to employees of “large, long-established, mature
firms”, rather than start-ups and rapidly-growing Canadian
businesses. The Government’s concern was that, under the
current rules,
