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In a move that appears to target some of the country’s highest earners in the corporate sector, the Liberal government will introduce a new measure that will limit the tax-deductible amount on employee stock option plans to just $200,000 from the current uncapped amount.

The new rule, however, will apply only to “large, long-established, mature firms,” according to the budget document.

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Startups and “emerging Canadian businesses” will be exempt from the rule, in order to help businesses that might not have the means to attract top talent due to profitability and cash flow issues.

Stock options that have been exercised are effectively taxed at half of an individual’s personal income tax rate. They are used by many companies to compensate top-level executives that are in a high tax bracket.

For instance, if an employee is granted 100,000 in options at a price of $50 and in two years, that share price has gone up to $70, the employee who exercises her options will reap a benefit of $2 million ($20 x 100,000). Under the current system, that employee is eligible to claim a tax deduction on $1 million of the benefit.