Fall Economic Statement 2020: Stock Option Deduction

Under the Income Tax Act (Canada), when an employee exercises a stock option to acquire shares, the difference between the value of the shares at the time the option is exercised, and the amount paid by the employee to acquire the shares is treated as a taxable employment benefit. The employee may be entitled to claim a deduction equal to one-half of the taxable benefit, provided certain conditions are met.

In Budget 2019, the federal government announced its intention to limit the employee stock option deduction for high-income individuals employed at large, long-established, mature firms by proposing an annual limit of $200,000 on stock options that would be eligible for the deduction. The government released draft legislative proposals in June 2019 and consulted stakeholders on the characteristics of companies that should be considered start-up, emerging and scale-up corporations to exempt such corporations from the new proposals.