Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Would subsection 7(1) apply to a stock option included in an offer of employment to a prospective employee?
Position: Yes.
Reasons: The agreement provides that the prospective employee can only exercise the stock options after certain conditions are satisfied including the actual employment of the person so the agreement would satisfy the conditions in subsection 7(1) of the Act.
XXXXXXXXXX 2000-003540
M. P. Sarazin
Attention: XXXXXXXXXX
September 8, 2000
Dear Sirs:
Re: Offer of Employment and Stock Options
This is in response to your letter of June 27, 2000, concerning the application of section 7 to options to acquire shares of a corporation that can only be exercised after a prospective employee commences employment with the corporation.
Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.
The Agency's general views regarding stock options are found in Interpretation Bulletin IT-113R4 (Benefits to Employees - Stock Options). As noted in 1 of IT-113R4, subsection 7(1) applies when a particular corporation has agreed to sell or issue shares of that corporation to its employee. Since the agreement does not provide a prospective employee with any rights until the commencement of employment with the corporation, we agree that section 7 of the Income Tax Act (the "Act") would apply to the particular agreement. In addition, where the conditions in paragraph 110(1)(d) of the Act are satisfied, the prospective employee would be entitled to claim the particular deduction provided thereunder.
We trust that the above comments will be of assistance.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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