As the federal government looks to change the way stock options are taxed, one tech expert is warning that if the new limit applies to startups, they’ll have trouble attracting and keeping talent.

“I think it’s a good thing that stock options are taxed as a capital gain. But if you’re going throw a tax on big corporations – turn capital gains into income – let’s limit it to the big corporations,” Bruce Croxon, co-founder of Round 13 Capital, said in a television interview with BNN Bloomberg Wednesday.

“Where it gets really problematic is in the startup tech community, which they say is going to be exempt. Let’s keep the pressure on to make sure it is – because stock options are sometimes the only way that you can hang on and attract your talent. You can’t afford to pay them what a big bank would.”

The federal government on Monday formally launched consultations on its plan to change the way stock options are taxed. Currently, any profits from stock options are taxed as a capital gain.  

The proposal, which Finance Minister Bill Morneau first tabled in his last federal budget, seeks to impose a $200,000 annual limit on employee stock option grants that can be taxed as capital gains. Any gains above that amount would be taxed as income. The Department of Finance said options granted by Canadian-controlled private corporations, and certain qualifying startups, would be exempted from the new limit on stock options.  

“Our way of fighting back and attracting people is to get them vested in the success of the company,” Croxon said. “One of the ways that is being done effectively is through stock options.

“If they mess with that, that’s going to be a problem.”

With files from Rajeshni Naidu-Ghelani