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The federal government is moving ahead with plans to impose a $200,000 limit on employee stock options taxed at a preferential rate beginning next year.

Finance Minister Bill Morneau tabled a notice of ways and means motion in the House of Commons on Monday to amend the Income Tax Act’s provisions for stock options, as announced in the 2019 federal budget. He also launched an industry consultation on the measures that will run until Sept. 16.

The motion proposes a $200,000 annual limit for certain companies on employee stock option grants that can be taxed effectively at the capital gains rate, beginning with stock options granted on or after Jan. 1, 2020. The $200,000 limit will be based on fair market value of the underlying shares.

The limit will not apply to options granted by Canadian-controlled private corporations (CCPCs). Other corporations, such as start-ups, will need to meet certain conditions in order to not be subject to the limit.

The consultation will help determine which companies should be considered “start-up, emerging, and scale-up companies,” a Department of Finance release said, and the government is also seeking views “on the administrative and compliance implications.”

The ways and means motion means the change is effective and set to apply to stock options issued on Jan. 1, 2020. A Finance Department spokesperson said that, following the end of the consultation period on Sept. 16, the government intends to release the prescribed conditions before the implementation date so that affected employers can comply with the new rules.

The change targets executives at large companies who are compensated with stock options currently taxed at the preferential rate. The policy rationale for the deduction is to support growing companies rather than executives at large corporations, the government says.

According to the department, 2,330 people who all earned more than $1 million claimed more than $1.3 billion in employee stock option deductions in 2017. While they only represented 6% of stock option deduction claimants, they accounted for nearly two-thirds of the total deductions.

The new rules would align with tax treatment of large firms in the U.S.

Stakeholders can submit comments on the proposed changes to the Finance Department’s tax policy branch.