TEI Comments on Proposed Changes to Canadian Tax Treatment of Employee Stock Options.

On October 7, 2019, TEI submitted comments to the Department of Finance Canada concerning the income tax legislative proposals on employee stock options that were released for public consultation on June 17 2019. TEI's comments, reprinted below, were prepared by a cross-industry working group of Canadian Income Tax Committee members under the leadership of Kurtis L. Bond and Steve Saunders.

On behalf of Tax Executives Institute, Inc. (TEI), I am pleased to accept the Department of Finance's invitation to submit comments with respect to the income tax legislative proposals on employee stock options that were released for public consultation on June 17, 2019. If enacted, these proposals would fundamentally alter the Canadian tax treatment of employee stock options--for employees and employers alike--and impose new tax reporting and compliance requirements on many Canadian businesses. TEI's comments address significant competitiveness and efficiency concerns raised by the proposed changes and provide recommendations for mitigating them to the mutual benefit of government, employers, and employees.

About TEI

TEI was founded in 1944 to serve the professional needs of in-house tax professionals. Today, the organization has 57 chapters across North and South America, Europe, and Asia, including four chapters in Canada. Our approximately 7,000 members represent 2,800 of the largest companies in the world, many of which either are resident or do business in Canada. Over 15 percent of TEI's membership comprises tax professionals who are employed by Canadian businesses from all regions and a variety of industries. TEI members are responsible for administering the tax affairs of their employers and must contend daily with provisions of the tax law relating to the operation of business enterprises. These comments reflect the views of TEI as a whole but, more particularly, those of our Canadian constituency.

As the preeminent association of in-house tax professionals worldwide, TEI is dedicated to the development of sound tax policy, uniform and equitable enforcement of tax laws, and minimization of administration and compliance costs to the mutual benefit of government and taxpayers. TEI is committed to fostering a tax system that works--one that is administrable and consistent with the principle of voluntary compliance. The diversity, professional training, and global viewpoints of our members enable TEI to bring a balanced and practical perspective to the issues raised herein.

Discussion

Employee stock options, which grant employees the right to acquire shares of their employer's stock in the future at a fixed price, are a common feature of many companies' employee compensation plans. Compensatory stock option plans are used not only to remunerate corporate executives but also to attract and retain talent at all levels, in all sectors. TEI members and the companies they support have traditionally favoured stock options as a method to align the long-term goals and interests of employees to those of the employer. The long-term vesting periods of employee stock options motivate employees to stay with a company for longer periods of time and take a stronger interest in the company's long-term success. Moreover, employee...