Quebec’s top CEOs are benefitting from a tax loophole system that is costing provincial and federal budgets more than $10 billion a year.
Among those loopholes, the Stock Option Deduction, bleeds $1 billion from federal and provincial budgets.
The profit from cashing in stock options is taxed at half the rate of ordinary working income by the federal government. Provinces also give executives a similar 50 per cent reduction on their taxes for stock options, except in Quebec, where it is 25 per cent.
But that hasn't stopped high profile Quebecers, including newly-minted Parti Quebecois candidate, Pierre Karl Peladeau. Financial statements from 2011 show that the former Quebecor CEO was sitting on a cool $560 million worth of stock. He will be able to get a half price deal on taxes due when he realizes capital gains on this stock.
He's not alone.
A list of the top ten Canadian CEOs receiving stock options shows that three Quebec CEOs qualify for a federal tax exemption on more than $270 million under the current rules.
“The tax system has morphed into an unwieldy mess of loopholes that are ineffective except for helping very wealthy people avoid paying taxes,” said Howlett. “While the top marginal federal tax rate is currently 29% the reality is that the wealthy are getting a huge discount, and very few end up paying anything close the the top marginal rate. That’s the magic of loopholes.”
Other tax loopholes, including the current set up for capital gains, business entertainment and transit deduction, have failed in achieving their intended objectives.
“We really have to question why Quebec companies benefit from a loophole that allows corporations to deduct the cost of luxury corporate boxes at the Bell Centre,” Howlett said.