1. Toronto, Ontario, Canada
Making Shared Ownership a Profitable Reality
11/20/2018

2. Global Equity Compensation
Canadian Perspective
October 29, 2001
Presented by Perry Phillips, CA, CBV, ASA
President, ESOP Builders Inc.

3. ESOP Legislation in Canada and its provinces
Government
Legislation
Incentive
Federal
Income Tax Act
•RRSP eligibility for employees
•Employees receive 20% matching tax credit
•Available only in Saskatchewan and BC
Nova Scotia
Share Ownership Plan Act
•Employees receive provincial tax credit 20%
Quebec
Quebec Stock Savings Plan & Societes de Placements dans L’Entreprise Quebecois
•125% to 175% deduction on funds invested to a maximum of 30% of employee’s net income
•RRSP eligible
Ontario
Community Small Business Investment Funds Act
•Employees receive provincial tax credit 20% on first $3,500, 30% up to $15,000, $150,000 lifetime limit
11/20/2018

4. ESOP Legislation in Canada and its provinces
Government
Legislation
Incentive
Saskatchewan
Labour Sponsored Venture Capital Corporations Act
•Employees receive provincial tax credit 20%
•Matching Federal Tax Credit 20%
•Maximum $1,000
British Columbia
Employee Investment Act
•Employees receive tax credit 20%
•Matching Federal Tax Credit
Manitoba
Manitoba Employee Ownership Fund Corporation
•Provincial tax credit $700 matching Federal tax credit of 20%
11/20/2018

5. Canadian Global Equity Survey Findings
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6. Canadian Global Equity Survey Findings
11/20/2018

7. Canadian Global Equity Survey Findings
11/20/2018

8. Canadian Global Equity Survey Findings (cont’d)
PROBLEMS:
Trouble finding reliable outsourcing companies
Employee information not user friendly
Fulfillment of buy / sells
Internal accounting complexity
Outsource administrator not knowledgeable
Start up issues
No real problems *
* 8 out of 17 companies reported no real problems
11/20/2018

9. Deferral of Stock Option Benefit for Public Company Employees*
Canadian Federal Income Tax Consequences:
An employee will generally have to pay Canadian personal income tax on a taxable benefit at the time stock options are exercised. The taxation of this taxable benefit generally applies whether or not the employee sells the shares received from the exercise of the stock options. However, due to recent Canadian tax changes, the employment benefit arising to public company employees on the exercise of stock options may be deferred in certain circumstances. In order for the deferral to be available the following criteria must be met:
The shares must be acquired after February 27, 2000.
The employee must be a Canadian resident at the time the shares are acquired.
11/20/2018

10. Deferral of Stock Option Benefit for Public Company Employees* (cont’d)
The employee must be arm’s length with the company at the time the option is granted.
The employee cannot be a specified shareholder (i.e. they, together with non-arm’s length persons cannot own 10% or more of any class of shares in the company).
The shares acquired must be of a class that is listed on a Canadian or prescribed foreign stock exchange.
The employee must be carried to the 50% employment benefit deduction (i.e. the option price must be at least the fair market value (“FMV”) at the time the options were granted).
The employee must elect to have the deferral provisions apply before January 16 of the year following the year in which the options are exercised. The election is filed with the employer.
11/20/2018

11. Deferral of Stock Option Benefit for Public Company Employees
Deferral of Stock Option Benefit for Public Company Employees* (Example)
Value of Shares at Time of Granting
Amount of Stock Options where Benefit Can be Deferred $
Year 1
50,000
Year 2
100,000
Year 3
150,000
Total
300,000
250,000
(*Authored by Michael J. Fremes, CA, ESOP Builders Inc. October 2001)
11/20/2018