Finance Committee on June 10th, 2010

[Nicolas Dufour, Bloc, Repentigny, QC]

Excellent. Thank you very much.

However, if we do a broader breakdown...There is nothing for incomes over $500,000. Persons earning $1 million, $2 million or $3 million a year are not taken into consideration. If we look at your table, we see that 75% of the pot was divided up among those earning in excess of $500,000. These represent financial losses for the Government of Canada and therefore, for all taxpayers. I'd be curious to know what share of this 75% went to persons with total incomes of $1 million. The greater the breakdown, the higher the income level becomes and the greater the share of the pot for those in the very high income brackets.

It is very surprising to see that given the way in which this stock option proposal was drawn up, only 7,985 persons will receive an average of $393,000, whereas persons earning between $100,000 and $500,000—and there are many more people in that category—will receive far less than that.

Would there not have been some way to provide for the more progressive cashing out of stock options to ensure a much more equitable distribution of the funds?

[Miodrag Jovanovic]

You have raised a valid argument and essentially, that is what this table highlights, namely that very high income earners benefit the most from the distribution process. Under the circumstances, it is even more important to ensure that our position strikes a fair compromise between the need to remain competitive internationally and the need to have, generally speaking, a fair and equitable system. That is what this policy is designed to achieve.

[Nicolas Dufour, Bloc, Repentigny, QC]

But I do not see much—

Fine. Thank you.

[The Chair, Conservative, James Rajotte]

Merci.

I want to thank you and second what Mr. Mulcair said in terms of your explanation here today.

I have a general question.

I was approached after the budget was introduced, and there were some discussions back and forth. It seems what some people want, further to what was put in the budget, is a further discussion in terms of what constitutes income of an employee and in terms of looking further at how stock options are addressed.

Are there any ongoing discussions within the department in terms of broadening the definition of employment income or of looking at the stock option issue in a more general way?

[Baxter Williams]

We saw this as a package that addressed outstanding concerns associated with employee stock options. We're not aware at this time of larger issues associated with their tax treatment.

We generally take a comprehensive approach to taxing employment income: any benefit, whether in kind or in cash, is considered taxable. In a broad sense, the treatment of employee stock options is consistent with that approach.

[The Chair, Conservative, James Rajotte]

Have you heard concerns that even with the changes that will happen here, there still is perhaps a disadvantage with respect to some other countries in terms of trying to attract talent, especially for smaller companies that cannot provide a large income at that stage, but that could provide a lot of stock options to attract these people?

[Baxter Williams]

I think some people have expressed a different view about whether an employee stock option should be treated as an employment benefit. That is true, although I've tried to provide the rationale for the approach that we've taken in the budget and in general.

Does that address your questions?

[The Chair, Conservative, James Rajotte]

Yes. Thank you.

Are there any other questions?

[Mike Wallace, Conservative, Burlington, ON]

I move to adjourn--

[Baxter Williams]

Actually, do you mind if I have a follow-up response, just in terms of the equity?

One of the consequences of the elimination of the double deduction is that, as with something like dividend income, you ensure that from both a corporate and an individual perspective, options are taxed in a way that is broadly comparable to how employment income would be taxed, so you have a situation in which the benefit provided by the option does not provide a deduction to the employer, but the employee receives a 50% deduction. In this sense we see this measure as achieving a certain comparability in the treatment of options relative to other employment income. That is important, given the distribution of the benefits the measure provides.

We actually have what I think is an interesting chart to that effect on page 354. It shows the taxation of employment income and its impact at the corporate level as well as at the individual level. You may find that interesting.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

I want to thank both of you for being with us here today. Perhaps it's my bias as chair of this committee, but I think it shows some good work by both this committee and the department in addressing a very real and serious issue for a lot of Canadians.

I want to thank all of you for being here today.

The meeting is adjourned.