As previously reported, the Canadian government deferred proposed changes to the capital gains inclusion and stock option deduction rate from 25 June 2024 until 1 January 2026. However, complexity still surrounds the application of the stock option deduction rules, creating an undue burden on employers with assignees working in Canada.
The federal government announced its intention to increase the portion of capital gains subject to income tax to 66.67%, applicable only to capital gains for individuals exceeding $250,000 in a calendar year.
Parallel legislation was also drafted that would impact certain employee stock option benefits for which the 50% stock option deduction is available. If the combined capital gains and stock option income realised after 1 January 2026 exceeded $250,000, employees would be eligible for only a 33.33% stock option deduction on the amount in excess of the $250,000 threshold, instead of the 50% deduction available under the current rules.
In advance of the Canadian federal election, Prime Minister Mark Carney announced that the government would not be proceeding with the increase to the capital gains inclusion rate (and related reduction in the stock option deduction). Carney won the election and remains prime minister, and the legislation will not be reintroduced in Parliament.
The announcement provides welcome certainty for both employers and employees, who would otherwise have had to navigate increasingly complex rules, especially with the potential integration of both personal capital gains and employer stock options for assignees.
However, additional rules previously introduced in respect of certain stock options granted after June 30, 2021, to employees of large corporations have increased employer compliance requirements, Canadian payroll reporting complexity, and tracking obligations. It is important for employers to understand the implications of these rules for employees who spend time working in Canada, whether as formal assignees or short-term business visitors.
While the confirmation that the proposed changes to the capital gains tax and stock option deduction rules will not be proceeding is welcome, continuing complexity around the application of the stock option deduction rules places an additional administrative burden on employers with assignees working in Canada.
Consult with a tax professional to understand how these rules might impact your specific global mobility program and its assignees. If you have any questions, please contact your BDO contact or the author of this article.
Marie Neill
BDO in Canada
What Were the Proposed Changes?
The federal government announced its intention to increase the portion of capital gains subject to income tax to 66.67%, applicable only to capital gains for individuals exceeding $250,000 in a calendar year.Parallel legislation was also drafted that would impact certain employee stock option benefits for which the 50% stock option deduction is available. If the combined capital gains and stock option income realised after 1 January 2026 exceeded $250,000, employees would be eligible for only a 33.33% stock option deduction on the amount in excess of the $250,000 threshold, instead of the 50% deduction available under the current rules.
Subsequent Government Announcements
In advance of the Canadian federal election, Prime Minister Mark Carney announced that the government would not be proceeding with the increase to the capital gains inclusion rate (and related reduction in the stock option deduction). Carney won the election and remains prime minister, and the legislation will not be reintroduced in Parliament.
How Could this Affect Employers and Their Globally Mobile Employees?
The announcement provides welcome certainty for both employers and employees, who would otherwise have had to navigate increasingly complex rules, especially with the potential integration of both personal capital gains and employer stock options for assignees.However, additional rules previously introduced in respect of certain stock options granted after June 30, 2021, to employees of large corporations have increased employer compliance requirements, Canadian payroll reporting complexity, and tracking obligations. It is important for employers to understand the implications of these rules for employees who spend time working in Canada, whether as formal assignees or short-term business visitors.
BDO Can Help
While the confirmation that the proposed changes to the capital gains tax and stock option deduction rules will not be proceeding is welcome, continuing complexity around the application of the stock option deduction rules places an additional administrative burden on employers with assignees working in Canada.Consult with a tax professional to understand how these rules might impact your specific global mobility program and its assignees. If you have any questions, please contact your BDO contact or the author of this article.
Marie Neill
BDO in Canada