19 October 1995 External T.I. 9527325 - STOCK OPTION PLAN

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:

Department's position concerning stock option plans allowing an employee to receive cash instead of shares still the same?

Position TAKEN:

YES

Reasons FOR POSITION TAKEN:

7(1)(b), 7(3)(b), 110(1)(d)
APFF October 1994

			5-952732
XXXXXXXXXX	M. Shea-DesRosiers

Attention: XXXXXXXXXX

October 19, 1995

Dear Sir/Madam,

Re: Paragraph 7(1)(b), 7(3)(b) and 110(1)(d) of the Income Tax Act (the "Act")

This is in reply to your facsimile of October 17, 1995 concerning the Department's position in a situation where a stock option plan permits an option holder to elect to receive cash in lieu of shares.

We confirm that the Department's position on the application of section 7 of the Act in situations where, pursuant to a stock option plan, an employee has the option of electing to receive cash instead of shares, has been maintained.

Where it is the employee and not the employer who has the right to choose cash instead of shares, paragraph 7(1)(b) of the Act will apply to include in the employee's income the benefit that derives from the exercise of the right under the plan. It is also the Department's view that, provided the conditions set out in paragraph 110(1)(d) of the Act are otherwise met, the employee would be entitled to deduct 1/4 of the amount of the benefit deemed by subsection 7(1) of the Act to have been received in the year in respect of the share. Furthermore, paragraph 7(3)(b) of the Act would not prevent the employer from deducting the amounts paid since no shares would have been sold or issued under the plan.

The above position does not make any distinction as the one mentioned in the second paragraph of your facsimile.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch