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Federal budget makes no change to stock options tax despite campaign promise

OTTAWA – The federal government dropped a controversial campaign promise Tuesday to change the way stock options are taxed as they promised billions to help support innovation in the budget.

During the election, the Liberals suggested they would look to put a cap of $100,000 a year on how much could be claimed through the deduction that reduces the tax charged on stock option gains.

But Finance Minister Bill Morneau said Tuesday he has no plans to make any changes to the way stock options are taxed.

“As I was out on pre-budget consultations I heard from many small firms and innovators that they use stock options as a legitimate form of compensation for their employees, so we decided not to put that in the budget,” Morneau said.

Craig Alexander, vice-president of economic analysis at the C.D. Howe Institute, said the government initially was approaching stock options as a source of income for high-income Canadians, but that changed.

“It became clear that stock options are actually an important part of compensation for particular sectors in the economy and often it isn’t the highest income individual that’s earning some money off of stock options,” he said.

“It was somewhat inconsistent for the government to say on one hand that we want to invest in the innovation, high-tech economy, and simultaneously say, ‘Oh, but we’re going to tax stock options significantly more.'”

The technology sector cheered the decision.

“We are thrilled that the government will engage in further consultations with industry and we look forward to being a part of that conversation,” Shopify chief executive Tobi Lutke said.

Before the budget, Lutke had suggested stock options, which can yield big windfalls, are a key incentive used by startup firms to entice staff to leave bigger companies and give up big salaries to join them.

“We look forward to working in collaboration with the government to design policies that help promising Canadian entrepreneurs commercialize their ideas globally,” said Jim Balsillie, chairman of the Council of Canadian Innovators and co-founder of BlackBerry.

Helping support innovation was a key theme in the budget as the federal government committed billions in spending for science and research.

The budget included $2 billion over three years for a new Post-Secondary Institutions Strategic Investment Fund that aims to improve and modernize research facilities.

The spending plan also included an additional $95 million per year to the research granting councils and an investment of $800 million over four years, starting in 2017-18, to help innovation networks and clusters designed to increase collaboration.

“We believe that businesses, post-secondary institutions, governments and other stakeholders can work together to accelerate economic growth,” Morneau said.

“We need to connect people and their ideas. These clusters are where innovation will happen — innovation that will ensure Canada is at the forefront of technological advancement in the 21st century.”