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New Stock Option Rules Coming — Take Action Now

New Stock Option Rules Coming — Take Action Now

Companies that offer employee stock option plans should consider whether to make changes before new rules are enacted later in 2019.

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In the 2019 federal budget, Finance announces that it will introduce a cap to the preferential personal tax treatment under the current employee stock option tax regime. Finance indicates that this cap would apply to stock option plans of "large, long-established, mature" companies, but does not include further details, which it says it will release before the summer of 2019. Finance also notes that any changes will only apply on a go-forward basis.

Although the budget announcement leaves some uncertainty as to how the rules will ultimately apply, companies may want to now consider the timing of granting stock options and other stock-based awards, in anticipation of full details of the new stock option cap. In addition, companies should prepare to implement tracking and monitoring for stock option grants and the application of the cap, to help differentiate the number of options eligible for the stock option deduction.

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