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Posted in: News

Feb 10, 2017

Harsh Words for Canadian Tax Treatment of Stock Options

The Globe and Mail recently published a provocative article on the tax treatment of stock options in Canada. In this opinion piece, Anthony Mouchantaf, the co-founder and president of Toronto startup Rthm Technologies Inc., argues that Canada's tax regime for stock options is outdated and works against the interests of startups and growth companies. Mouchantaf bases this opinion on multiple grounds, including that:

  • preferential treatment for Canadian-Controlled Private Corporations is an "anachronistic industrial relic" that ignores the value that tech-specific capital markets in the United States can provide to Canadian companies;
  • the length of time that an employee has held shares should be irrelevant for tax purposes, since startups often have unpredictable life cycles due to acquisitions, exits or failure; and
  • current tax policy dissuades companies from issuing options with an exercise price below fair market value, which reduces startup companies' flexibility in designing attractive packages for potential new hires.

 

Instead, Mouchantaf proposes giving stock options identical treatment to capital gains and sheltering them under the Lifetime Capital Gains Exemption or something similar.

Stock options are a critical tool for early-stage and growing companies, particularly at the pre-revenue stage. But there's no doubt that the regulatory and tax regime behind these policies can be technical. In hopes of helping readers wrap their heads around the subject, we've published an article on option plans detailing the range of option plans available to companies and their tax treatment.

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