Little known secret: Stock Options work twice as well in Canada!

There has been considerable discussion about the impact of bill C-47 — which passed second reading earlier this month — on the use of stock options as incentives in technology startup companies.

Canadian tech startups have long enjoyed a little known but significant benefit in contrast to their US competitors; employment related option gains are taxed at half of regular income tax rates. This is huge, particularly combined with the fact that many provinces — including Alberta — have lower income tax than California to begin with. And yes, it ever works on a cashless exercise as most often happens on the sale of a tech company. Layer on the roughly 40% of expenses recouped through SRED by the typical savvy entrepreneur and remedy of Section 116 and you can see why US venture funds are spending time in Canada these days!

My layman’s interpretation of C-47 is that it is a non-issue to our sector, it deals with the way large and public companies use stock options. CCPCs (Canadian controlled private corporations)  aren’t even required to start withholding for the taxes that are owing when an employee exercises an option. Options still don’t generate a tax liability until exercised and employees can still file for the stock option deduction.

Now get hiring those first rate Canadian grads to build the next cloud miracle company!

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1 Response to Little known secret: Stock Options work twice as well in Canada!

  1. There’s also a $400K exemption, meaning your first $400K capital gains is tax-free!

    And in BC, if you take your tax-free $400K and invest that in ANOTHER startup, you may even qualify for a 30% tax rebate from the provincial government.

    This is a GREAT place to do a startup.

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