The great Canadian CEO tax heist

Every so often I’m reminded there’s a ridiculous loophole in Canada under which individuals can deduct 50% of the income earned through stock options (in other words, people compensated with stock options pay tax on *only half* that income.)

The loophole is predominantly taken advantage of by highly compensated people, often high-ranking executives at large firms (in 2014, for example, three quarters of all deductions claimed through the loophole were from 8,000 very high-income Canadians).

We’ve effectively created a system in which people who quite literally earn 200x the average income don’t have to pay taxes on their total earnings.

The chart below shows what Canada’s highest paid executives made in 2017. Now compare the base salaries to the actual take home pay (which often includes stock options). I don’t have a figure for how much the deduction was used in 2017, but in 2014 the loss of tax revenue from this loophole alone was $750 million.

Rank Name Company Base Salary Other Compensation* Total
1 Michael Pearson Valeant Pharmaceuticals International Inc. $182,902,189 $182,902,189
2 Donald Walker Magna International Inc. $415,462 $26,124,238 $26,539,700
3 Hunter Harrison Canadian Pacific Railway Ltd. $2,803,522 $17,098,931 $19,902,453
4 Steven Hudson Element Financial Corp. $1,200,000 $18,077,385 $19,277,385
5 Mark Barrenechea Open Text Corp. $981,787 $16,988,255 $17,970,042
6 Donald Guloien Manulife Financial Corp. $1,723,671 $13,889,848 $15,613,519
7 Brian Hannasch Alimentation Couche-Tard $1,356,260 $13,458,456 $14,814,716
8 Linda Hasenfratz Linamar Corp. $605,839 $13,608,995 $14,214,834
9 James Smith Thomson Reuters Corp. $1,981,433 $11,730,709 $13,712,142
10 Bradley Shaw Shaw Communications Inc. $2,500,000 $10,641,235 $13,141,235

It’s an obvious point (made forcefully by Quebec writer Alain Denault) but one that somehow eludes a lot of public discussions around taxation:

Every dollar of tax revenue not collected from a CEO means a longer hospital queue, another pothole; another day a toddler has to wait before receiving a critical operation; another delayed renovation in a public housing unit; another15 minutes a worker has to stand at the bus stop before she can be at home, spending time with her kids and enjoying her life.

Chart source: CCPA

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