Stock Options Deduction

On April 16, 2024, the 2024 federal budget proposed an increase to the inclusion rate on capital gains realized annually above $250,000 by individuals, effective June 25, 2024. These changes mean that capital gains, including stock options, exceeding the annual limit will be taxed at the higher effective rate of one-third of the benefit, compared to the current regulations. The proposed changes will also affect charitable donations of employee option securities. 

 

Under the current rules, the total amount of a stock option benefit is reported as employment income; however,  employees can claim a deduction of one-half of the stock option benefit, provided certain conditions are met, effectively taxing qualifying stock options at the same rate as capital gains. 

 

On June 10, 2024, the federal government published the Notice of Ways and Means Motion to introduce an Act to amend the Income Tax Act and the Income Tax Regulations related to the changes to capital gains, including employee stock options: 

  • No changes to stock options benefits realized prior to June 25, 2024. 

  • The $250,000 threshold for individuals will apply only to stock option benefits realized on or after June 25, 2024. 

  • The $250,000 threshold will be fully available in 2024 and will not be prorated.   

  • Eligible individuals will still be able to claim a deduction of one-half of the stock option benefit up to a combined annual limit of $250,000 for employee stock options. 

  • Eligible stock option deductions over the $250,000 annual threshold will be limited to one-third of the stock option benefit.   

Employers and employees must stay informed about these upcoming changes to manage their stock option plans effectively. 

The National Payroll Institute will monitor the progress of this amendment and advise its members accordingly. 

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