Startups and ‘emerging’ businesses will be exempt from new rules, which will impose a $200,000 cap on tax-deductible amount
In a move that appears to target some of the country’s highest earners in the corporate sector, the Liberal government will introduce a new measure that will limit the tax-deductible amount on employee stock option plans to just $200,000 from the current uncapped amount.
Stock options that have been exercised are effectively taxed at half of an individual’s personal income tax rate. They are used by many companies to compensate top-level executives that are in a high tax bracket. “The idea is to take away some of the advantages that high-income earners currently enjoy, and introduce more tax symmetry into the system,” said Carmela Pallotto, tax partner at auditing firm KPMG.
“The government does not believe that employee stock options should be used as a tax-preferred method of compensation of executives of large, mature companies.” Ball also questioned whether this new system would be competitive when compared to stock option deduction incentives in other countries. The government is claiming that this new stock option tax treatment is a move that is “aligned” with the United States.
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