Taxation of Equity Based Executive Compensation in Canadian Tech Start-ups


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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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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