Tax memo: Stock Options: 2010 Federal Budget Implications for Employers

Canada’s 2010 federal budget proposes significant changes to the rules for stock options in Canada. These suggestions:

• Disallow both employer deductions and employee access to the 50% stock option benefit tax deduction for cashed-out stock options – only the employer or employee would be able to claim a tax deduction
• Eliminate employee elections to defer the payment of tax on stock option benefits until the shares are sold
• Provide relief for employees who, before 4:00 p.m. EST on March 4, 2010, elected to defer the payment of tax on stock option benefits related to which the tax liability now exceeds the value of the shares
• Eliminate the undue hardship exemption for withholdings on stock option benefits and require withholdings in connection with these benefits after 2010

In the Tax memo below, our tax professionals help clarify important aspects of the changes, including whether:

• Employers are required to make an election with respect to deductibility on a plan-wide basis, or can make the election in respect of individual agreements
• Elimination of the double deduction (employer and employee) for cash settlements of stock options applies to unexercised options in existence before March 4, 2010. While the budget makes it clear that these provisions apply to all options, the wording in the Notice of Ways and Means Motion could potentially be read differently.

Tax memo: Stock Options: 2010 Federal Budget Implications for Employers (78 KB) Download the full PDF Tax memo.