Donated stock options worth millions should be taxed, says top court

Canada's supreme court upholds provincial decision to count options given to charity as taxable employment income

Donated stock options worth millions should be taxed, says top court

The top court of Canada has ruled that stock options given to charity by an employee should be treated as employment income under Quebec's tax laws.

The Supreme Court unanimously affirmed a decision by the Quebec Revenue Agency to include $3 million (US$2.3 million) in stock options under the taxable employment income of appellant Yves Des Groseillers, reported Reuters.

In 2010 and 2011, Des Groseillers gave stock options the he had acquired as the CEO of BMTC Group to charitable organizations.

According to Des Groseillers, the stock options shouldn't be treated as employment income for tax accounting purposes because he didn't earn any advantage from not exercising them, nor receive any compensation.

Nevertheless, he used the receipts from the donations to file a tax credit claim.

The Quebec Revenue Agency "correctly assessed Des Groseillers ... for the benefit received," the Supreme Court ruled in dismissing his appeal.

In a 2014 audit, the Quebec Revenue Agency found that Des Groseillers' employment income should have included the stock options and required him to pay additional taxes.

Des Groseillers took his case to a Quebec court, which took his side against the province’s tax agency. That decision was subsequently overturned when an appeals court reinstated the agency’s original determination.

Because other provinces' tax rules are structured similarly to Quebec's, the decision may have effects elsewhere.

Similarly, the ruling could assist governments in plugging any revenue leaks related to taxes.

A recent analysis by the Canada Revenue Agency suggests that it should have been able to collect between $35.1 billion and $40.4 billion more in taxes back in 2018.

The CRA found that ongoing compliance and collection activities could yield an additional $17 billion in tax revenue. But that would still leave a tax gap, which measures the difference between the amount of tax it should be able to collect and the amount it actually does, of 7% to 9%.