How will the NDP’s tax plan affect startups?

Thomas Mulcair NDP

With Canada’s next federal election tentatively scheduled for October 19, the country’s party leaders have been busy telling Canadians how they plan to reshape the nation. However, despite a weakened economy, very little has been said about how each party aims to help augment Canada’s innovation economy. It’s for that reason that recent comments by NDP leader Thomas Mulcair are coming under scrutiny from Canada’s startup community.

On March 27 at an event at the Broadbent Institute, a left-leaning think tank, Mulcair announced that should his party be elected, they will tax earnings from stock liquidation and redirect the revenue to low-income families.*

“This will be a dollar-for-dollar transfer in benefits from those who need it the least to those who need it the most,” said Mulcair during the event.

Under the current regulation, executives only pay taxes on 50 percent of their earnings from stock options.

Besides announcing his party’s intention on the matter and saying that the regained tax revenue would go toward the Working Income Tax Benefit and the National Child Benefit Supplement, Mulcair offered precious few details on how the NDP would go about eliminating the tax break. His rhetoric specifically targeted CEOs and senior executives, but party officials later confirmed to the National Post that any reversal of the tax break would affect anyone with stock options.

It’s estimated that the stock option tax break cost the federal treasury $625-million in 2013, and another $750-million in 2014 in lost revenue. Moreover, that number can easily climb in a year when a number of people decide to liquidate their stock. With companies like Shopify filing their initial public offering, and with several other Canadian companies rumoured to be preparing to do so as well, that number is expected to grow significantly in 2015.

It’s here that the implications for startups becomes apparent. Part of being part of being employed by an early-stage startup often means taking a smaller wage in favour of taking stock options. In doing so, these employees forgo immediate returns in order to gamble on getting a much bigger one down the road. This is different from a CEO or senior executive of an established corporation who is guaranteed to see significant returns upon of their stock options.

Chris Hamoen, the director of growth at Hubba, spoke to this issue. “There is a very real issue with corporate execute [sic] pay skyrocketing, but targeting stock options is silly,” he said on StartupNorth’s Facebook page.

“If the NDP decides to run on a platform that makes it so early stage employees cannot defer option grant taxation, and win, it will be disastrous,” added Kyle Campbell, a co-founder Vancouver-based Retsly. “It would imply that they do not understand that option grants are the lifeblood of the middle-class tech worker which make up a huge part of the start up industry.”

*This article originally reported that the revenue redirection would go towards middle-class families. We regret the error.

Igor Bonifacic

Igor Bonifacic

Igor Bonifacic is a Toronto-based writer interested in exploring the intersection of technology, entrepreneurship, and life.