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New CRA Tax Rules for Stock Options Reduce Taxable Benefit  Effective 2020

New CRA Tax Rules for Stock Options Reduce Taxable Benefit Effective 2020

The June 2019 budget rolled out new tax laws, which will become effective in January 2020. Tightening the rules applicable to stock option benefits will remove planning opportunities for many companies and, the government hopes, increase revenues as a result.

In addition to salaries, bonuses, and commissions, corporations and other businesses can choose to compensate their employees by offering stock options at a discounted rate relative to the fair market value. The difference between the fair market value and the purchase price is deemed a taxable benefit for the employee (which means that employees pay tax on it). In most cases, subsequent gains are taxed at preferred rates—employees can claim a deduction that allows them to remove one-half of the gains since the option was granted in income.

Ontario tax deductions

Under new rules in the 2019 budget, stock options granted by Canadian Controlled Private Corporations will be treated as they were under the old regime, which now governs “qualified options”. Options from “start-ups, emerging, and scale-up” companies can also issue qualified options, although the boundaries of this category are unclear. Stock options from other companies and mutual fund trusts can be qualified, but the grantor can only issue $200,000 of options in a given year.

All other options (for example, from public companies) are “non-qualified”. This means that employees will not be able the 50% deduction on increases in value, although in some circumstance the grantor company may claim a deduction for the benefits.

Effective January 2020, the deductible will cap at $200,000, with the rest taxed at the full rate. That is, where a benefit was worth $500,000, only $200,000 of the benefit will be deductible while the remaining $300,000 will be subject to tax.

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Contact a lawyer at Kalfa Law to assist you in your tax planning when it comes to employee compensation schemes through stock options.

You work hard for your money; we work hard for you to keep it™ .


-Shira Kalfa, BA, JD, Partner and Founder

Shira Kalfa is the founding partner of Kalfa Law. Shira’s practice is focused in corporate-commercial and tax law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law. Shira graduated from York University achieving the highest academic accolade of Summa Cum Laude in 2012. She graduated from Western Law in 2015, with a specialization in business law. Shira is licensed to practice by the Law Society of Ontario. She is also a member of the Ontario Bar Association, the Canadian Tax FoundationWomen’s Law Association of Ontario, and the Toronto Jewish Law Society. 

© Kalfa Law 2020

The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.

Contact a lawyer at Kalfa Law to assist you in your tax planning when it comes to employee compensation schemes through stock options.

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