This article has been updated. It was originally published on 21 February 2025
The Canadian government proposed amendments to the capital gains tax regime In the 2024 federal budget. Under the current framework, 50% of the capital gains realised from the sale of assets like real estate or securities is taxable. The proposed amendment would increase this inclusion rate to 66.67% for capital gains exceeding CAD 250,000 realised after 24 June 2024. (For prior coverage, see Canada - Canada Legislation on Proposed Stock Option Changes Still Pending - BDO).
The proposed changes have a parallel impact on employee stock option benefits for which the 50% stock option deduction is available. If the combined capital gains and stock option income realised after 24 June 2024 exceeds $250,000, employees would be eligible for only a 33.33% stock option deduction on the excess amount, instead of the current 50% deduction.
However, political turmoil has delayed passage of this legislation, leaving the fate of the amendments uncertain. With a possible election on the horizon, it is unclear whether the proposed changes will become law.
After months of discussion about the changes to the capital gains inclusion rate from 50% to 66.67%, the Department of Finance issued a news release on 31 January 2025 to indicate that the date of implementation of such changes would be deferred from 25 June 2024 to 1 January 2026.
The Canada Revenue Agency (CRA) later announced that it would revert to administering the 50% capital gains inclusion rate for capital gains realised before 1 January 2026 unless an exemption applies. The CRA is updating its systems and forms to reflect this change.
For individual and trust filers, the CRA will adjust its forms in the coming weeks to show the 50% inclusion rate. Meanwhile, the CRA advised corporations to continue using existing forms and tax software to file until further notice.
Québec’s Finance Ministry has confirmed its intention to harmonise the Québec tax legislation with the federal deferral of the capital gains inclusion rate increase until 1 January 2026. However, the amendments will be adopted only after the federal legislation receives assent (or a federal regulation giving effect to these measures) is adopted and will take effect on the same dates as federal measures.
While the Department of Finance news release and the CRA announcement did not specifically mention the impact on the employee stock option deduction, we anticipate that the deferral will also apply to the proposed reduction in the employee stock option deduction. Pending further clarification from the Department of Finance, the following considerations remain relevant for employer and employees.
As employers prepare to issue 2024 T4 slips to employees and file T4 returns with the CRA by the 28 February 2025 deadline, they must closely monitor CRA updates and carefully assess the risks of waiting for further clarification and updated forms, compared to filing on time. A strategic and well-planned approach will help ensure compliance, minimise penalties and interest, enhance the employee experience, and reduce potential rework and associated costs.
The CRA has not provided guidance on how the reversion of forms will affect employers who have already issued their T4 slips and filed their T4 returns, particularly those that reported the employee stock option benefits and deduction in the newly introduced fields (codes 90, 91, 92). Some employers may need to amend their T4 slips/returns depending on how the CRA updates its forms and reporting requirements. However, it is anticipated that employees may make certain stock option adjustments directly when filing their 2024 Canadian personal income tax returns, potentially reducing the employer’s burden for amending T4 slips ---though this remains to be confirmed.
Regardless of the approach taken, clear and proactive communication with employees is critical to ensure they understand how these changes may impact their tax filings. Employers should consider offering access to tax advisory services to help employees navigate the uncertainties and potential implications on their 2024 personal tax returns.
When completing their T1 personal income tax return, employees will claim the corresponding stock option deduction as reported on their T4 slips.
A new Federal Worksheet to support the newly introduced line 24901 (“Additional Security Options Deduction”) is currently under review. This may provide employees with a means to adjust their stock option deduction on their T1 personal tax returns, though this has yet to be confirmed.
From an employee perspective, the CRA has announced relief for late-filing penalties and arrears interest until June 2, 2025, for impacted T1 Individual filers (and until 1 May 2025 for impacted T3 Trust filers). This extension provides additional time for taxpayers reporting capital dispositions to meet their tax filing obligations and is anticipated to apply to employees who may need to adjust their stock option deduction.
Practically speaking, the deferral means at least two things:
While the proposed changes to the capital gains tax could affect employees with large combined capital gains and stock option income, the prevailing uncertainty in the legislative process underscores the importance of staying informed and understanding the potential effects on taxpayers. Your BDO advisor can help you navigate these changes and work collaboratively with you and your employees as the situation evolves.
Debra Moses
Joanne Sun
Jason Ubeika
Marie Neill
BDO in Canada
The Canadian government proposed amendments to the capital gains tax regime In the 2024 federal budget. Under the current framework, 50% of the capital gains realised from the sale of assets like real estate or securities is taxable. The proposed amendment would increase this inclusion rate to 66.67% for capital gains exceeding CAD 250,000 realised after 24 June 2024. (For prior coverage, see Canada - Canada Legislation on Proposed Stock Option Changes Still Pending - BDO).
The proposed changes have a parallel impact on employee stock option benefits for which the 50% stock option deduction is available. If the combined capital gains and stock option income realised after 24 June 2024 exceeds $250,000, employees would be eligible for only a 33.33% stock option deduction on the excess amount, instead of the current 50% deduction.
However, political turmoil has delayed passage of this legislation, leaving the fate of the amendments uncertain. With a possible election on the horizon, it is unclear whether the proposed changes will become law.
Recent Government Announcements
After months of discussion about the changes to the capital gains inclusion rate from 50% to 66.67%, the Department of Finance issued a news release on 31 January 2025 to indicate that the date of implementation of such changes would be deferred from 25 June 2024 to 1 January 2026.The Canada Revenue Agency (CRA) later announced that it would revert to administering the 50% capital gains inclusion rate for capital gains realised before 1 January 2026 unless an exemption applies. The CRA is updating its systems and forms to reflect this change.
For individual and trust filers, the CRA will adjust its forms in the coming weeks to show the 50% inclusion rate. Meanwhile, the CRA advised corporations to continue using existing forms and tax software to file until further notice.
Québec’s Finance Ministry has confirmed its intention to harmonise the Québec tax legislation with the federal deferral of the capital gains inclusion rate increase until 1 January 2026. However, the amendments will be adopted only after the federal legislation receives assent (or a federal regulation giving effect to these measures) is adopted and will take effect on the same dates as federal measures.
How will this affect the employer and employee reporting of the stock option deduction?
While the Department of Finance news release and the CRA announcement did not specifically mention the impact on the employee stock option deduction, we anticipate that the deferral will also apply to the proposed reduction in the employee stock option deduction. Pending further clarification from the Department of Finance, the following considerations remain relevant for employer and employees.
Employer Considerations
As employers prepare to issue 2024 T4 slips to employees and file T4 returns with the CRA by the 28 February 2025 deadline, they must closely monitor CRA updates and carefully assess the risks of waiting for further clarification and updated forms, compared to filing on time. A strategic and well-planned approach will help ensure compliance, minimise penalties and interest, enhance the employee experience, and reduce potential rework and associated costs.The CRA has not provided guidance on how the reversion of forms will affect employers who have already issued their T4 slips and filed their T4 returns, particularly those that reported the employee stock option benefits and deduction in the newly introduced fields (codes 90, 91, 92). Some employers may need to amend their T4 slips/returns depending on how the CRA updates its forms and reporting requirements. However, it is anticipated that employees may make certain stock option adjustments directly when filing their 2024 Canadian personal income tax returns, potentially reducing the employer’s burden for amending T4 slips ---though this remains to be confirmed.
Regardless of the approach taken, clear and proactive communication with employees is critical to ensure they understand how these changes may impact their tax filings. Employers should consider offering access to tax advisory services to help employees navigate the uncertainties and potential implications on their 2024 personal tax returns.
Employee Considerations
When completing their T1 personal income tax return, employees will claim the corresponding stock option deduction as reported on their T4 slips.A new Federal Worksheet to support the newly introduced line 24901 (“Additional Security Options Deduction”) is currently under review. This may provide employees with a means to adjust their stock option deduction on their T1 personal tax returns, though this has yet to be confirmed.
From an employee perspective, the CRA has announced relief for late-filing penalties and arrears interest until June 2, 2025, for impacted T1 Individual filers (and until 1 May 2025 for impacted T3 Trust filers). This extension provides additional time for taxpayers reporting capital dispositions to meet their tax filing obligations and is anticipated to apply to employees who may need to adjust their stock option deduction.
Practical Considerations
Practically speaking, the deferral means at least two things:
- There will be more administrative burden and delays in filing the 2024 tax returns while taxpayers wait for the CRA to issue updated guidance and forms reflecting their announcement.
- The original and now deferred proposed changes to the inclusion rate have not been passed into law and may never be enacted, particularly if there is a change in government in 2025.
BDO Can Help
While the proposed changes to the capital gains tax could affect employees with large combined capital gains and stock option income, the prevailing uncertainty in the legislative process underscores the importance of staying informed and understanding the potential effects on taxpayers. Your BDO advisor can help you navigate these changes and work collaboratively with you and your employees as the situation evolves.Debra Moses
Joanne Sun
Jason Ubeika
Marie Neill
BDO in Canada