Yes.
Thank you for extending the invitation. We will be pleased to answer any of your questions to the best of our abilities.
I just thought before we begin it might be worth reviewing measures implemented in the last budget, which in large part address some of the concerns initially raised in the letter. But before doing so, I'd just like to provide some context around the underlying framework in which we developed this measure and the principles involved.
The starting point for this is to consider the nature of an employee stock option. The benefit it provides through its exercise is derived as a result of an individual's employment relationship. In this context, we treat the employee stock option as an employment benefit. Any subsequent gain or loss in the value of the acquired security is treated as a capital gain or loss. The result of this is that an individual who acquires a security by using employee stock options is in a comparable position in terms of the capital gains and losses on the security as someone who acquired it using after-tax income.
Nevertheless, even though you have this comparability in the treatment of the security, employee stock options enjoy a preferred taxation relative to other employment income. Subject to general conditions, they're eligible for a 50% deduction on the value of the benefit. In addition, the employee enjoys the advantage of being able to defer the underlying benefit value embodied in the option until the point of exercise of the option.
It's important to also consider the potential value of this benefit. The average benefit realized in the exercise of an employee stock option exceeds $100,000. But perhaps more importantly, one can consider where the bulk of that benefit is realized. Over 75% of the value of these benefits are realized by individuals reporting income in excess of half a million dollars. The benefit they realize on average is $800,000. So we're not dealing with what you might consider working-class individuals when you're looking at the taxation of employee stock options. Given the value of these options, ensuring a fair tax treatment is understandably important.
In the context of Budget 2010, special elective tax relief measures were introduced that limited the value of the tax liability associated with the deferred stock option benefits to the proceeds realized from the disposition of the shares. This measure was implemented in recognition that many individuals may not have fully realized the implications of the tax deferral measure introduced in Budget 2000 and the potential financial liabilities that could arise. It was part of a package of measures implemented to ensure that similar situations did not arise in the future. That included the elimination of the deferral measure, and in addition a clarification of existing withholding rules to ensure that employers put in place the systems necessary to remit the tax liabilities associated with the exercise of an option upon its exercise.
That concludes my remarks.