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Federal Minister of Finance Bill Morneau speaks during a press conference in Ottawa on Dec. 17, 2019. In an announcement late Thursday, the federal Finance Minister’s office said it is still reviewing the feedback it received through mid-September.Sean Kilpatrick/The Canadian Press

Ottawa is postponing its plan to boost taxes on stock option gains for highly paid executives because it has been unable to say which companies will be subject to the law.

The new tax plan was to take effect Jan. 1. The last remaining issue was how to draw the line between startup or emerging companies – who would be exempt – versus the “large, long-established, mature firms” subject to the tax.

In an announcement late Thursday, the federal Finance Minister’s office said it is still reviewing the feedback it received through mid-September. “As a result, the proposed changes to the tax treatment of employee stock options will not come into force on the previously proposed date,” it said.

A new implementation date has not been announced. Instead, the government will unveil details on how it intends to move forward with the measure in its 2020 budget.

The new coming-into-force date “will provide individuals and businesses time to review and adjust to the new employee stock option tax rules," the Finance Minister’s office said.

The delay marks a second victory for Canada’s tech industry, which pushed back on a similar Liberal promise in 2015, arguing it would hurt their ability to attract and keep employees. Stock options are a near-ubiquitous tool at startups, where cash is scarce but the promise of the soaring value of company shares makes options an attractive substitute.

Under current federal rules, employees who receive options – the right to buy a company’s stock at a set price during a defined future period, benefiting from its increasing value – are only taxed on 50 per cent of the gains. The new law says option recipients at “large, mature companies” will only get preferential tax treatment for the first $200,000 worth of shares underlying their options.

When the government reintroduced the concept in its 2019 budget in March, it said it would have clarity on the company definitions by summertime.

In Thursday’s announcement, the government reiterated its views on the need for the tax law change, in the name of equity. “The tax benefits of the employee stock option deduction disproportionately accrue to a very small number of high-income individuals. The government does not believe that employee stock options should be used as a tax-preferred method of compensation for executives of large, mature companies.”

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