Most stock-option benefits are only one-half taxed. That is, although the entire benefit is included in your income, one-half of the benefit is normally deducted in computing your taxable income.
As discussed in our August 2019 Tax Letter, the government recently proposed to restrict the one-half deduction. It proposed that only $200,000 worth of stocks under an option would qualify for the one-half deduction, each year. Benefits above the $200,000 threshold would be fully taxable. However, the one-half deduction would continue to apply to all stock options of employees of smaller, start-up corporations, including Canadian-controlled private corporations.
The proposals were scheduled to apply to options granted after 2019. However, on December 19, 2019, the Minister of Finance announced that more time was needed to determine the scope of the small, start-up corporations that would continue to benefit from the one-half deduction rule. As a result, the proposals are not yet applicable, and the new application date and more details will be announced in the 2020 Federal Budget.