The Liberals’ proposal to increase taxation of stock options will hurt Canada’s high-tech sector, including in Ottawa, by discouraging talented entrepreneurs from investing in startup firms, says an opposition MP.
“If the Liberal government taxes stock options out of existence, promising startup enterprises will lose one of their best tools to attract bright young people to work in Ottawa,” Pierre Poilievre said Sunday.
The MP for Carleton called on Ottawa-area Liberal MPs to pressure the government to abandon plans for higher taxes on stock options, warning that such a measure “would kill jobs in the city’s high-tech sector.”
Last year, during the federal election, the Liberals’ fiscal policy platform included a commitment to put a ceiling on the amount of money that can be claimed through stock option deductions. At present, employees with stock options can claim deductions that effectively reduce the tax rate on stock-option income by half.
The Liberals maintained that while stock options can provides small startup firms with a way to lure top talent they couldn’t otherwise compensation with high salaries, too many high-income earners cut hundreds of thousands of dollars from their taxable incomes by using the stock-option deductions. However, they noted that because such instruments help smaller startup tech firms, the first $100,000 in stock option gains wouldn’t be affected by a policy change.
Poilievre argued the Liberals are being short-sighted and stifling the kind of innovation that creates jobs and generates tax revenue.
“Stock options allow cash-strapped startups to afford the most talented employees by letting them profit from future increases in share prices — enticing today’s talent with a piece of tomorrow’s treasure,” he said.
Ottawa’s high-tech sector would be particularly hurt by the Liberal tax proposal, he said, pointing out that most of 900 or so high-tech companies in the national capital area have fewer than 10 employees.
“Small business startup enterprises are a key part of the high-tech resurgence in this city … (They) can’t pay the big salaries, at least in their early stage of development, (so) they offer employees a piece of future growth as compensation for the lower salary.”
The Liberals’ plan would see “many young professionals and the entrepreneurs that employ them to seek opportunity outside Canada instead,” Poilievre said.
That argument echoes one made late last week by the chief executive of one of Canada’s hottest high-tech companies, Shopify.
Tobi Lutke called on the Liberals to abandon plans for a tax increase on stock options, saying such a tax would have made it more difficult for him to get his Ottawa e-commerce company going.
“It would have been harder to build Shopify with the taxation being the way that it is proposed,” he said.
In January, an organization known as the Canadian Council of Innovators, made up of 20 Canadian firms, was established to pressure the government to back down on stock option changes affecting small or large firms.
The issue has caught the government’s attention. On Friday, when questioned on the topic in the House of Commons, Innovation Minister Navdeep Bains acknowledged the government has “heard … concerns around stock options.” Nevertheless, without saying anything specific, he maintained that the Liberals’ “innovation agenda” will help companies grow and succeed.
That’s not good enough for the Tories, who are appear intent on pushing the stock option issue hard as the Liberals prepare their first budget, which they are expect to deliver in mid-March.
Last month, Conservative Leader Rona Ambrose described the Liberal proposal as a bad idea. “I’ve spoken to a number of people in the tech sector in British Columbia and Vancouver in particular, and they are very concerned about taxing of stock options,” she said.