Budget 2016: Tech sector ‘relieved’ after Liberals ditch stock option tax plan

An election campaign promise to retool taxes on stock options has been shelved in the first federal budget put forward since the Liberals swept to ...

An election campaign promise to retool taxes on stock options has been shelved in the first federal budget put forward since the Liberals swept to power last fall.

“I’m relieved and delighted that they decided to leave the stock options taxation alone,” said Jonathan Rhone, CEO of Axine Water Solutions.

Tech startups frequently use stock options as a way to recruit top talent to work for a lower cash salary.

“Frankly, it’s used all over the world in other markets and if we make our stock option policy less competitive with the U.S. or other countries, we’ll simply lose the entrepreneurs and we’ll lose high-tech workers to other markets because it’s such an important part of their compensation,” Rhone said.

Details about the plan were limited in the Liberals’ campaign platform but before coming to power in October the party said it would cap the amount employees can claim through stock-option deductions.

The previous Conservative government allowed a 50% deduction on the benefit when employees exercised stock options.

The new government later clarified employees with less than $100,000 in stock option gains would not be affected. And in November, Finance Minister Bill Morneau said any new policies would only affect stocks issued after changes were made.

By the time the federal budget came out March 22, the Liberals’ plan to retool stock-option taxation had been dropped entirely after tech leaders complained the plan would make it harder to recruit talent.

Jock Finlayson, chief policy officer at the Business Council of B.C., said the decision aligns with the Liberal government’s efforts to move the economy away from its dependency on natural resources.

“If they’re serious about that, the last thing they should be doing is making it less attractive for highly skilled people to come and work in Canada,” he said.

But Finlayson said he doesn’t think the decision to drop the plan from this first budget means the Liberals won’t retool stock-option taxes further down the road.

“I’m sure this is going to continue to be reviewed as part of this top-to-bottom reassessment of tax expenditures.”

Bill Tam, CEO of the B.C. Technology Industry Association, said the move signals a willingness from the government to support the tech industry's efforts to expand.

"In our consultations with BC tech companies, especially those seeking to scale, the No. 1 issue for them was talent," he said.

"In an environment where companies are competing for the very best talent, often in competition with firms in the U.S. and globally, stock options play a critical role for Canadian tech companies in attracting that talent."

torton@biv.com

@reporton
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