To provide some background for non-Canadians: Rather than having entirely separate rates, capital gains in Canada are taxed as "half income" based on the normal

To provide some background for non-Canadians: Rather than having entirely separate rates, capital gains in Canada are taxed as "half income" based on the normal tax brackets. So if you earn $X of regular salary and I earn no salary but make a capital gain of $2X (or if I earn $X/2 salary and make a capital gain of $X) then we pay the same amount of income tax. If you buy a stock option, it ends up resulting in a capital gain or loss; either you dispose of the option and directly produce a capital gain or loss, or you exercise the option and it counts towards the book value of the shares you acquire, resulting in a capital gain/loss later. The tax treatment of incentive stock options is weird, because they don't consider you to "own" the options in question. So instead of getting a capital gain as the stock option gained value, you're considered to be paid the ultimate value of the stock option as "earned" income. People realized this was dumb, so a rule was put in place to "fix" this: Incentive stock options would be 50% tax-exempt, bringing them down to the capital gains tax rate. The issue at hand here was whether that "fix" should be removed, limited, or left intact. Right now inventive stock options receive the same net tax treatment (via a different route) as purchased stock options; the proposal was to tax employees at a higher rate than investors. If this proposal had passed, it wouldn't have yielded any significant increase in tax revenues, since there was a simple workaround: Rather than granting stock options to employees, pay them a small bonus and then have them buy the stock options from you. The lawyers would have made plenty of money drawing up the paperwork, but nobody else would have benefited. [I am neither a tax lawyer nor an accountant. This is not legal or tax advice.]