Author: Jamison Klang
Jamie is an associate in Dorsey’s Benefits and Compensation practice group. He advises clients on ERISA, tax, and related issues affecting qualified and non-qualified benefit plans as well as executive compensation arrangements. He assists clients in strategically drafting stock incentive plans and all related SEC disclosures. He devotes a substantial portion of his practice to advising both public and private companies on compensation and benefits issues that arise in transactions.
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While the recently enacted U.S. tax reform legislation did not overhaul executive compensation to the extent proposed in early forms of the bill, Section 162(m) of the U.S. Internal Revenue Code was dramatically revised in a way that affects Canadian companies that file reports with the SEC and that employ, or may in the future employ, executives in the United States. Previously, Section 162(m) limited the amount of compensation that an SEC reporting company that was a “domestic issuer” for securities law purposes, or its subsidiaries, could deduct with respect to its most senior executives. Important for many of our Canadian clients, we believe that under the rule changes, U.S. tax deductions for...
Canadian companies and their outside counsel occasionally ask about the ability to grant early exercise incentive stock options (“ISOs”) to limit the impact of the U.S. alternative minimum tax (“AMT”) to their U.S. employees. However, due to fairly counterintuitive U.S. federal tax regulations, structuring options in this manner may expose optionees to negative tax consequences in the event of a disqualifying disposition (defined below). This post reviews the tax effects of early exercise ISOs and compares the tax results to alternative structures. Early Exercise ISO Tax Consequences With any early exercise option, the optionee is permitted to initially exercise their entire stock option by paying the full option exercise price, but will receive...
