This paper compares the tax implications of two common approaches to equity-based compensation of executives in technology start-ups in Canada: stock options and restricted shares. The paper begins with an overview of recent changes in approaches to executive compensation and considers their relevance in the context of technology start-ups. In the second section I review the Income Tax Act’s general framework governing taxation of equity-based compensation, with specific application to stock options and restricted shares. In section three I compare the differing tax consequences associated with stock options and restricted shares, concluding that in many situations restricted shares can be a significantly better choice than stock options for Canadian technology start-ups and their executive teams.
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