The cap on employee stock options — part of the tax changes in the federal Liberal’s 2019 budget — are vaguely defined and will lead to confusion and litigation, say tax lawyers.
In the budget, released March 19, the government proposed placing an annual cap on stock options for employees of “long-established, mature firms” at $200,000. Those working at “startups and rapidly growing” businesses will not be subject to this change. Currently, employee stock options get special tax treatment, allowing for an income inclusion deduction, which makes the income incurred from the option taxable at close to the capital gains rate, and this can be realized by employees at any type of company.
The problem lies in the definitions, say tax lawyers. What a startup, a rapidly growing Canadian business and a mature business are may be hard to translate into legislative language, says TaxChambers LLP counsel and University of Ottawa law professor Vern Krishna.