Tax loophole lets Potash CEO avoid tax on $300 million in stock options

Thanks to Canada’s loopy tax laws, a miner making $50,000 per year will pay tax on 100% of their earnings because they get paid in salary, while the CEO who runs the mine can avoid tax on half their earnings because they get paid in stock options.

Meet Bill Doyle, the outgoing CEO of the Potash Corporation of Saskatchewan Inc.

As part of his executive compensation package, Doyle will have earned $300 million in profits from stock options when he transitions to company advisor in a few months, according to the Globe and Mail. A separate investigation by the newspaper in 2010 found that Potash executives stood to make as much as $700 million from stock options at the time.

Meanwhile, in Toronto, Onex Corp. recently filed details with Canadian regulators of CEO Gerald Schwartz’s 2013 compensation package. Turns out $59.6 million of Schwartz’s $85.3 million compensation was doled out in stock options. His annual salary was $1.3 million.

“Stock options have become the single largest component of compensation among CEOs and senor executives at large public traded companies in Canada,” said University of Victoria professor of public administration Lindsay Tedd. “The income earned from stock options is granted preferential tax treatment when compared to other forms of employment remuneration.”

Using a special deduction created in 1984, if a person buys and sells shares on the same day, they only pay tax on half of their stock option earnings. Coincidentally, 90% of all stock options are bought and sold on the same day, taking full advantage of the loophole.

The flip side of the loophole? It costs Canadians $1 billion each year.

And according to the Globe’s 2013 survey of executive compensation, Canadian CEOs stand to get very rich off stock options, often the biggest chunk of their compensation package and far more lucrative than their salaries.

Does this seem fair?