Tax perk for wealthy CEOs will cost Canada $840M this year


It’s ordered the stock option deduction — a tax break for employees that critics say large benefits wealthy corporate executives. According to the finance department, keeping this perk sound will cost Ottawa a projected $840 million this year.

That’s one convince many critics would like to see the deduction eliminated.

«It’s outrageous,» avers Dennis Howlett with the advocacy group, Canadians for Tax Fairness. «Why wish we give more money to those who are already overpaid and extremely well-heeled?»

The federal Liberal Party at one time agreed. As part of its 2015 stand promise «to target tax loopholes that particularly benefit Canada’s top one per cent,» it warranted to cap the stock option deduction.

FedElxn Liberals 20151020

During the 2015 election, the Liberals undertook to cap the stock option deduction. (Fred Chartrand/Canadian Press)

Then five months after taking the election, the new Liberal government quietly abandoned the plan in its first budget.

Howlett and other critics foresee that in Wednesday’s second budget, Ottawa will finally dynamic up to its election promise and claw back the perk. Howlett claims the stimulate would generate millions of dollars for social programs.

«To not do anything devise be totally unjustifiable,» he says. «We’re throwing the money away.»

Income excised at a discount

Stock options are a potentially lucrative part of employee compensation where top bananas and sometimes other employees can purchase company stock at a set price. When they specie in the stock, if certain conditions are met, any profit is typically taxed at only half the reprove of regular income.

In other words, people who already benefit from size up options also get an added bonus of a major tax discount.

Advocates of the perk wrangle that it encourages innovation by helping startups and smaller companies entice new talent.

«It’s just part of the small company culture, really, because they can’t pay husky salaries,» Rod Thomas, president of the Prospectors & Developers Association of Canada, confessed CBC News in March.

But most employees who are granted stock options are already up in fat salaries, argues David Macdonald, senior economist with the Canadian Heart for Policy Alternatives. The organization is a left-leaning think-tank focused on economic and community policy.

«If you are getting paid in stock options, it’s fairly likely you’re euphonious wealthy,» says Macdonald. «It’s incredibly concentrated among the richest CEOs.»

Tax interjects for top earning CEOs

A recent study by the Centre for Policy Alternatives make public that in 2011, about 99 per cent of the benefits from the deal in option deduction went to Canada’s top 10 per cent of income earners.

In a approve of study on CEO salaries, the organization reported that among the highest paid 100 CEOs in Canada in 2015, 75 beared stock options as part of their pay package.

Top earners included Orion Harrison, then the CEO of Canadian Pacific Railway. According to the report, he have a claimed $2.8 million in base pay. On top of that, his stock options were benefit an estimated $5.2 million.

If he had cashed them in, presumably that $5.2 million would be assessed at half the rate of his base salary. 

«[CEOs] get big breaks on this,» maintains Macdonald. 


When Hunter Harrison was CEO of CP Rail, his stock options were significance an estimated $5.2 million in 2015. (Shaun Best/Reuters)

Howlett says the direction could protect smaller businesses by capping the amount that is loaded at the lower rate, instead of axing the lower stock option inference altogether.

The Liberals came up with this idea themselves during the electing, pledging to fully tax individual stock options gains over $100,000.

Then in Parade, according to the Canadian Press, Finance Minister Bill Morneau put an ended the plan, stating that he was informed by «many small firms and innovators that they use heritage options as a legitimate form of compensation for their employees.»

Question Period 20160921

in March, Accounting Minister Bill Morneau shelved a plan to change the taxation classify for stock options. (Adrian Wyld/Canadian Press)

«I don’t know why they weren’t astute enough to say, ‘OK, we’ll just put a cap on it so it still helps the startups but closes this outlet that helps all the big rich CEOs,'» says Howlett.

CBC Scandal asked the government why it backtracked on its plan to cap the stock option deduction. 

«Our regime is committed to strengthening the middle class,» wrote department of finance spokesperson Annie Donolo in an email to CBC Word. As part of its commitment, the government is reviewing the tax system as a whole «to ensure fairness, unsophisticatedness and effectiveness,» she said.

She made no mention of the deduction helping startups, the two together argue with the Liberals gave last year for not changing it.

Donolo would not say if the taxation of reservoir options will be addressed in the upcoming budget. 

A federal budget go over again issued last week by RBC stated that there is speculation that the budget liking increase taxes on capital gains — profit from the sale of a brill asset which is also currently taxed at half the rate of orthodox income.

Any change to the capital gains tax could also affect the reserve options deduction.

«That move could be hard to square with the management’s billing of the document as an innovation budget, given that some sectors use stock-based compensation to fascinate talent,» said the RBC report.

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