Canada: New stock option regime, to be effective 1 July 2021

The changes would apply to stock options granted by employers that are corporations or mutual fund trusts.

Stock options granted by employers that are corporations or mutual fund trusts

Employers in Canada that offer employee stock option benefit plans need to consider proposed changes that would limit the preferential individual (personal) income tax treatment of options granted after 30 June 2021.

Under changes that are in pending legislation, companies would have to apply a $200,000* annual cap to the amount of employee stock options regarding the stock option deduction available for employees. Although these rules would limit the availability of the stock option deduction for certain employees, employers would be entitled to claim the deduction if certain conditions are met.

These changes would apply to stock options granted by employers that are corporations or mutual fund trusts, but would not apply to Canadian-controlled private corporations (CCPCs) or non-CCPCs with annual gross revenue in the most recent consolidated financial statements not exceeding $500 million.

KPMG observation

Companies that could be affected by this new annual cap need to consider the timing of granting stock options and other stock-based awards before the new rules are effective. In addition, these companies need to be prepared to track and monitor stock option grants and the application of the cap to differentiate the number of options eligible for the stock option deduction.

Companies also would need to determine that for stock option agreements entered into on or after 1 July 2021, the vesting period of the options would need to be clearly stated to avoid the Canada Revenue Agency’s new deemed vesting period.

Read a June 2021 report [PDF 204 KB] prepared by the KPMG member firm in Canada

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