The federal government is officially launching consultations on its plan to change the way stock options are taxed, but one Bay Street money manager is warning the Liberals to tread carefully to ensure start-ups aren’t punished in the process.

Finance Minister Bill Morneau tabled a ways and means motion in the House of Commons on Monday, proposing a $200,000 annual limit on employee stock option grants that can be taxed as capital gains under the current law. Gains above $200,000 will be taxed as income.

Kash Pashootan, chief executive officer and chief investment officer at First Avenue Investment Counsel, said on Tuesday that he sees logic behind the government’s move to crack down on what can be seen as tax deferrals, but added that he hopes lawmakers consider what needs to remain in place.

“Really, the devil is going to be in the details,” Pashootan told BNN Bloomberg in an interview. “They’re talking about start-ups being exempt from that, and that’s a key part of this, because certainly start-ups don’t have the same capital and same balance sheets necessarily as a large, established [companies].”

Presently, any profits from stock options are taxed as a capital gain, which means half of the amount can be considered tax free, while the other half is taxed as income.

The Department of Finance said in a press release on Monday that options granted by Canadian-controlled private corporations, and certain qualifying start-ups will be exempted from the new limit on stock options.

“The public policy rationale for preferential tax treatment of employee stock options is to help smaller, growing companies such as start-ups—that do not have significant profits and may have challenges with cash flow—attract and retain talent,” the department said, adding it is looking for input on what should be considered “start-ups, emerging or scale-up companies.”

The proposed changes were first announced in March as part of the federal budget. The Department of Finance said that the new rules will apply to stock options granted on or after January 1, 2020.

Pashootan said that as long as the government’s tax change is well thought out and is not an “overriding blanket rule,” it would be justified.

“I think [the government’s] efforts will be well received, reasonable and understood by the market,” Pashootan said.

“I think stock options are an effective tool if used responsibly like many things in the world of finance.”