(February 28 – 16:00 ET) This year’s federal budget promises to make it easier for employers, particularly those in high-tech industries, to use share ownership plans and stock options to encourage employees to take a stake in the business.
Employers have been complaining the current treatment of taxing benefits when employees exercise their stock options has been forcing some employees to sell the shares immediately in order to pay the tax. Now Ottawa says stock options granted by public companies won’t be taxed until the employee sells the shares.
The deferment of tax until disposition will take effect immediately and will allow vesting of $100,000 in stock a year — to match the U.S.
For example, an employee receives options on Jan. 1, 2001, to acquire 16,000 shares over four years with vesting rights to purchase 4,000 shares each year. The value of each share is $10 at the time the options are given. Since the value of the shares vested in each year at the time the options were granted does not exceed $100,000, the employee is able to defer tax on each year’s vesting.If the employee were to vest all the shares at once, tax would be deferred on 10,000 shares.
Finance Minister Paul Martin says the changes will provide employees with added incentive to stay with employers and participate in the growth of the business. The high-tech community has been lobbying Ottawa for months to match U.S. tax treatment to stamp out a leading cause of brain drain.
Lyle Teichman, a tax lawyer with Towers Perrin, says the changes certainly represent parallel treatment with the U.S. but only time will tell if the changes will have an impact on the brain drain south. But Lisa Mills, a tax lawyer with Hicks Morley in Ottawa, says the changes will probably have a great impact at smaller high-tech companies.
-IE Staff