Looking at draft legislation for stock option deductions.
The federal government laid out plans for changing the rules governing employee stock option deductions in its 2019 budget. The Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada gave its broad response to those planned changes earlier this year; with its new submission it tackles some of the more technical concerns raised by the draft legislation to amend the Income Tax Act.
The submission makes more than a dozen recommendations dealing with issues from the definition of “vesting year,” to whether and employer should be considered a “specified person,” to making sure provisions for when the changes come into force are applied appropriately. “The coming-into-force provisions for the two key operative provisions should, in our view, be identical in order to preclude any possibility that the (tax) deduction could be denied to an optionholder under the new regime in circumstances where the employer is disentitled to a corresponding deduction.”
The Joint Committee also recommends adding a provision to deal with instances where an employer’s business has been reorganized between the time when stock options have been granted and when they are exercised, and the granting entity no longer exists. In that case, the Joint Committee says, the legislation should provide for “a successor following a partnership wind-up and a successor following an asset transfer … should be deemed to be the entity that was the employer at the grant time.”
Other concerns raised by the Joint Committee include notification requirements, vesting limits and simultaneous grants.