January 10, 2016 12:14 pm

Taxing stock options weakens Canada in ‘war for talent’: CEO

John Ruffolo of the Canadian Council of Innovators tells Tom Clark how a Liberal plan to close a tax loophole could cripple Canada’s technology sector.

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Tech giants Shopify and Hootsuite are among dozens of companies that are leading Canada into a new, technology-driven economy but the sector has enormous problems finding investment and keeping key talent. And one immediate threat, according to industry leaders, is a proposed tax hike on stock options.

“By changing these rules, you might actually strike at the very heart of getting the talent that you need to compete,” said John Ruffolo, CEO of pension fund OMERS Ventures, and increasingly a spokesman for Canada’s start-up tech industry.

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“And in this game, it is a complete war for talent.”

For many Canadians, talk of stock options conjures up images of wealthy executives getting options for company shares. When cashed in, they’re taxed to the mere half the rate of their salary, which is an effective tax dodge for the executive. But start-up tech companies with no money can also use worthless options to pay their young workers, explained Ruffolo – sometimes for years. If the company takes off, those options turn into money, but it’s a huge gamble for the worker. It’s also often the only way new tech gets off the ground.

Changing the tax rules at this stage, as the Liberals have proposed doing by taxing options over $100,000, could drive top talent south of the border or overseas, Ruffolo told the West Block’s Tom Clark.

“There’s no manufacturing plants, there’s not equipment – it’s only brainpower, and they can walk anywhere that they would like,” he noted.

Asked if sector representatives like himself are making any headway in convincing the government to create an exemption for the tech industry on stock option tax, Ruffolo said he’s optimistic.

“Our job is not to be adversarial, but to actually educate the government to see the unintended consequences,” he explained. “Let’s devise the rules in a manner to shut down what you think is abusive, but not hurt those things that we believe will create wealth, not only for a particular sector, but for the entire nation of Canada.”

Watch the full interview above.

WATCH: A primer on stock options

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