Time to close the stock option loophole

Toronto – January 10, 2017 – As ordinary working Canadians returned to work from the holidays, they were greeted with the news that Canada’s top 100 chief executive officers (CEOs) had earned the annual income of the average Canadian worker by lunchtime on January 3. In 2015, these top executives received 193 times the average worker’s salary.

Canadians have become so use to hearing this type of news that they have assumed that this is just how things work – that the rich just keep getting richer. But there are things that could be done to make things fairer, like closing the stock option loophole.

More and more CEOs are receiving a greater portion of their income in the form of stock options that are taxed at just half the rate of salaries and bonuses. Every year, the federal government forfeits hundreds of millions of dollars in tax revenue because of this loophole. The stock option loophole is considered a government expenditure, and in that sense it is a budgeting decision. So at a time when our current Liberal government is trying to trim health care transfers to the provinces, and when we are told that we can’t afford pharmacare, child care, or free tuition, the government believes it can still afford to give away hundreds of millions of dollars a year to already-wealthy CEOs.

The stock option loophole was introduced in 1984 to help start-up companies attract top talent. However, the option was quickly co-opted by well-established companies as a simple way to pay less tax. A study by the Canadian Centre for Policy Alternatives (CCPA) found that in 2013, 75 of Canada’s highest-paid CEOs benefitted from the stock option loophole to the tune of $495 million dollars. 

During the 2015 Federal Election, Justin Trudeau’s Liberal Party promised to fully tax stock options that exceeded $100,000 as part of its commitment to increase taxes on the wealthiest Canadians, but it took the Trudeau government only 6 months to break that promise.

Prior to introducing the 2016 federal budget, Finance Minster Bill Morneau faced a barrage of lobbying from many of his old friends from the corporate world, including former Liberal Finance Minster John Manley, now the CEO of the Business Council of Canada. These corporate lobbyists trotted out the same old argument that the stock option loophole was necessary to help small firms and innovators, but as we already know, the loophole is mainly being used as a tax evasion tool by the wealthy corporate elite. Magically, when the budget was introduced in March 2016, the stock option loophole remained.

As inequality and wage disparity continue to grow, and while the provinces are squeezed by the federal government on health care funding, the 1 percent are getting richer while ordinary Canadians struggle to make ends meet. The bloated compensation of CEOs, and the ability of the wealthy to pay less tax through the stock option loophole, highlight the serious issue of growing inequality in our society, and the social ills that come with it. If the Trudeau Liberals are serious about increasing taxes on the wealthiest Canadians, they should close the stock option loophole in this year’s budget. It’s time for the richest among us to pay their fair share of taxes.