Employee Stock Option Tax and New Leave in Canada

Canadian government officials have introduced several new provisions for the year of 2021, including a new employee stock option tax structure, and new leave options.

Canada Amends Employee Stock Option Taxation

Beginning July 1,2021, eligible businesses will be offered a new structure for taxation of their Employee Stock Option. The directives for this new structure are listed below:

Preferential tax treatment may be applicable to some employees, however, no more than CAD 200,000 can be vested on these employee stock options annually.

A portion of the employee’s stock option benefit may be eligible for a corporate tax deduction for some employers. This will be applicable to the portion that does not meet the criteria for preferential tax treatment for such cases where the annual limit is surpassed, etc. Employers will have to meet certain criteria to be qualified for this deduction, however.
Stock options offered by Canadian-controlled private corporations (CCPCs) are not subject to this stock option limit. The limit is also not applicable to options that are granted by non Canadian-controlled private corporations, with a yearly gross revenue not exceeding CAD 500 million as a group.

Employer Considerations:

After June 30, 2021, employers should refer to these new guidelines prior to allocating stock options to employees. Corporate tax liability will also be affected by these guidelines, and employers should refer to them in such instances.

COVID-19 Prompts New Leave Options

The “Covid-19 Period” brought about the implementation of an “infectious disease emergency leave” by the Ontario government. This leave was applicable to any employees who were unable to work due to COVID-19 related issues, and was deemed to be effective up until January 2nd of 2021.

In response to newly implemented regulations, the “COVID-19 Period” has now been extended to July 3, 2021 by Ontario government officials. Eligible employees will continue to have access to Infectious Disease Emergency Leave (IDEL) up until the aforementioned date.

The extension of this leave also protects non-unionized employees who have experienced wage reductions or decreased working hours within the March 1st, 2021 and July 3rd, 2021 period. Accordingly, employees will be safe from facing lay-offs or discharged from their job as a result of such reductions, under the Employment Standards Act, 2000 (ESA) of Ontario. Beginning July 4th, 2021, IDEL will no longer be applicable, and employers may re-implement original ESA provisions and guidelines.

Employer Considerations:

Employers will need to update employee leave policies accordingly and review details of the guidelines prior to making any employee dismissals.