Finance Committee on June 10th, 2010

[Baxter Williams]

JDS's wasn't an employee stock option plan; it was an employee share purchase plan.

[Mike Wallace, Conservative, Burlington, ON]

Oh, okay.

[Baxter Williams]

CRA has already looked after it through a remission order.

[Mike Wallace, Conservative, Burlington, ON]

Okay. I appreciate that.

For my clarification, it was the deferral piece that caused us the issue. Are we getting rid of the deferral option that's there, for tax purposes?

[Baxter Williams]

That's right, the deferral has been eliminated.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Wallace.

Monsieur Mulcair.

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Chair, I'll try and be as brief as my colleague Mr. Wallace.

First of all, I want to thank Mr. Williams.

We haven't heard from you, Mr. Jovanovic, but your presentation represents the very best the public service has to offer. It was amazingly clear. Although it touched on quite a dry topic, namely the benefits associated with employee stock options, people will have learned something about the process, because your presentation was, from an educational standpoint, extraordinarily clear.

We worked for three years with Nortel employees who were caught in an unexpected bind. As Mr. Wallace so aptly stated, these individuals were able to testify because of the work of this committee. The solutions were provided mainly in the budget. Personally, I'm very satisfied with the collaborative approach adopted here. Sometimes, the tools employed produce results that no one can anticipate. This was one such case. I'm very pleased with the outcome and again, I think today's presentation represents the best that Canada's public service has to offer.

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Mulcair.

[A voice]

Oh, I have a tear.

[Mike Wallace, Conservative, Burlington, ON]

Ask for a raise when you get back.

[Baxter Williams]

Please pass it as a motion.

[Voices]

Oh, oh!

[The Chair, Conservative, James Rajotte]

Order.

Ms. Hall Findlay, please.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

Thank you, Mr. Mulcair. That was a moment.

This is not in the budget implementation bill. Pretty much everything and the kitchen sink is in the budget implementation bill. Do you have any idea why this is not?

[Baxter Williams]

I think because of its technical nature, and the timelines associated with the budget implementation bill, it wasn't possible to include full legislative language in the bill. I think consistent with standard practice, we would be introducing subsequent bills to enact the remaining proposals that are in the budget, and I would expect it would be addressed at that time.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Given that we're almost at the end of our session, and will see the budget implementation bill likely pass with everything and the kitchen sink in it, if this will have to be delayed until the fall, for example, do you expect any negative consequences from that, or will it be covered off at that point?

[Baxter Williams]

I can't foresee any negative consequences associated with its delay.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Because of the first answer to Mr. Wallace too?

[Baxter Williams]

Yes.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Okay. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Hall Findlay.

Monsieur Dufour.

[Nicolas Dufour, Bloc, Repentigny, QC]

Mr. Chair, it would appear that I'm the only one who has questions today for the witnesses.

My first question is for Mr. Williams.

In the United States, stock options are treated like capital gains, whereas in Canada, the benefit can be claimed as a deduction.

Could you explain the difference between the two treatments and the associated advantages, or disadvantages?

[Baxter Williams]

I guess in the States it's important to distinguish between statutory stock option plans and non-statutory plans, because the treatment associated with the two is considerably different.

The value of the bulk of employee stock options in the States is realized through non-statutory plans. In this case they're taxed as any other employment benefit, in that there is no capital gains treatment associated with it. They're taxed at full rates. Subject to certain conditions around withholding periods, the maximum value of the benefit, and the maximum value of the benefit vesting, statutory plans will receive certain tax considerations, such as the ability to delay the taxation of the benefit until exercised.

I think on an overall basis, the Canadian system provides a more competitive treatment, in that we have put in place general conditions under which you can receive a 50% deduction on the value of the benefit.

[Nicolas Dufour, Bloc, Repentigny, QC]

Thank you very much.

I understand the principle of employee stock options. Clearly, the purpose behind them is to attract highly qualified employees and keep them here in Canada. However, there's something I don't quite understand. I'm looking at table A5.3 on page 388 which shows the distribution of stock options by income for the year 2007. One thing that strikes me in particular are the average values.

Just between you and me, if we look at the average values for a person earning less than $100,000 a year and those values for a person earning in excess of $500,000 a year, it becomes apparent that there is no point in having an average value.

I'd be curious to know what the actual median is. That figure would probably be more interesting that the average value. Do you have an idea of the median value of employee stock options?

[Miodrag Jovanovic, Senior Chief, Saving and Investment Section, Department of Finance]

Unfortunately, we do not have that information, but if you like, we could get it to you later.