In Budget 2019, the federal government announced that it intends to cap the 1/2 deduction for employee stock option benefits to $100,000. The Liberal government's 2015 election platform included a promise to cap the stock option deduction, but it abandoned this proposal in the months following the election. The 2019 Budget surprisingly resurrected this tax promise, and on July 17, 2019, the government released draft legislation for consultation.
Employee stock options granted on or after January 1, 2020 will be subject to the new rules. The cap is equal to $200,000 per vesting year. However, rather than being based on the stock option benefit, the cap is based on the fair market value of the securities underlying the option at the time it is granted (at least based on the examples in the technical backgrounder). The cap will not apply to employees of a CCPC. The proposed rules will also not apply to start-up companies, and the government is consulting the public on the matter of what rules should be used to determine whether a company is a start-up. Comments should be submitted by September 16, 2019.