In his first budget this afternoon, Finance Minister Bill Morneau has reversed a campaign promise made by his Liberal government to put a $100,000 cap per year on how much could be claimed through the deduction that reduces the amount of tax charged on stock option gains.
Offering stock options in lieu of salary to employees is a key method for young companies with high growth potential and an early lack of revenue to compensate employees, because they are taxed more favourably than salary.
Under pressure from entrepreneurs across Canada, perhaps most prominently the CEO of Ottawa eCommerce giant Shopify Tobias Lütke, the government has indicated that it has listened in order to change a policy that would have been potentially harmful to Canada’s start-up ecosystem.
“As I was out on pre-budget consultations I heard from many small firms and innovators that they use stock options as a legitimate form of compensation for their employees so we decided not to put that in the budget,” said Morneau.
In February in the House of Commons, Minister of Innovation, Science and Economic Development Navdeep Bains prepared the ground for the Liberal government’s change of heart by recounting a recent visit he had made to Shopify’s Ottawa headquarters.
“Mr. Speaker, I had the opportunity actually to visit Shopify. It is an incredible Canadian success story, and what is encouraging is that they have a government that is really committed to a comprehensive innovation agenda, an agenda that will create opportunities for companies like Shopify to expand and go into operation,” said Bains. “We have heard their concerns around stock options. We are engaged with them. More important, they are very excited about the fact that this government is going to be putting forward an innovation agenda that will really help companies grow and succeed here and be competitive globally as well.”
In abandoning the election promise, which had been designed to eliminate a loophole that the Liberals had portrayed as a way for high-earning companies to reduce their tax bill, the Finance Minister has demonstrated a willingness to listen and change his mind on an issue that will help grow innovative businesses in Canada.
Also mentioned in the budget is the development of an Innovation Agenda, which was outlined in Prime Minister Trudeau’s mandate letter to Navdeep Bains, charging him with “expanding effective support for incubators, accelerators, the emerging national network for business innovation and cluster support, and the Industrial Research Assistance Program. These investments will target key growth sectors where Canada has the ability to attract investment or grow export-oriented companies. You will assist the Minister of Finance to ensure tax measures are efficient and encourage innovation, trade and the growth of Canadian businesses; and working with Regional Development Agencies to make strategic investments that build on competitive regional advantages. For those communities that have relied heavily on one sector in the past for economic opportunities, investments that support transition and diversification may be appropriate. Communities that have relied on traditional manufacturing are likely to require specific strategies to support economic growth.”
— Navdeep Bains (@NavdeepSBains) March 22, 2016