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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: What date was an agreement established for the purposes of an assessment under subsections 7(1) and 110(1)?
Position: We provided comments of a general nature to the TSO.
Reasons: The application of Section 7 and subsection 110(1) is a question of fact which must be addressed by the TSO.
December 4, 2001
WINNIPEG TAX SERVICES OFFICE HEADQUARTERS
Mr. Bruce Cook W.C. Harding
Director (613) 957-8953
Attention: David Slack
Audit Division
2001-010175
XXXXXXXXXX Audit
Enclosed is a copy of a letter we recently received, that pertains to a proposed reassessment of an individual as a result of the above-noted audit. Because the letter relates to an on-going audit action by your office, we have advised the writer, XXXXXXXXXX, that we would not respond to him directly but would provide you with our comments. We would ask that you confirm your receipt of this memorandum with him at your earliest convenience.
The issues raised in the letter have been the subject matter of a number of telephone conversations between Mr. David Slack of your office and Mr. Wayne Harding of our office. XXXXXXXXXX is of the opinion that XXXXXXXXXX entered into an agreement to issue shares to his client at the time he was offered a job with XXXXXXXXXX argues that the written option agreement signed by the parties, at a subsequent date, is not the agreement to which section 7 and paragraph 110(1)(d) of the Income Tax Act (the "Act") refers. XXXXXXXXXX cites our letter of September 8, 2000, (our file E2000-0035405, enclosed) as support for his position.
It is our understanding that Mr. Slack reviewed a number of documents pertaining to the issuance of the options in question, to the employees of XXXXXXXXXX, including XXXXXXXXXX client. Based on that documentation, Mr. Slack made a factual determination that an agreement to issue shares as contemplated under section 7 of the Act was not offered to XXXXXXXXXX client at the time he received his offer of employment. In particular, Mr. Slack found that XXXXXXXXXX had advised its employees that it had established an employee stock option plan and that, subject to the approval of its Board of Directors, it would, under the terms of that plan, enter into agreements to issue options to particular employees. In summary, it is our understanding that XXXXXXXXXX client was advised that, as an employee, he would be entitled to participate in the plan and that he was eventually offered an option for shares in accordance with the terms of the plan. However, there was no evidence that any agreement existed before that date.
When XXXXXXXXXX referred to our letter of September 8, 2000, Mr. Slack provided us with various documents pertaining to the issuance of the options in question and asked for our oral comments on its application. We advised that the comments in the letter would apply if it was, in fact, found that an agreement to issue shares was established at the time XXXXXXXXXX made the offer of employment. However, in the absence of any evidence to the contrary, we tend to agree with Mr. Slack's determination that the prima facie evidence appears to support the view that an agreement did not exist until the option documents were signed.
For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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