Income Tax Severed Letters - 2020-04-08

Ruling

2020 Ruling 2019-0816991R3 F - Multi-wings split-up net asset butterfly 55(3)(b)
Unedited CRA Tags: 
55(2), 55(3)b), 55(3.1), 80, 186(4), 191.1, 245(2)

Principales Questions: Whether the proposed transactions meet the requirements of paragraph 55(3)(b).

Position Adoptée: Yes.

Raisons: Based on the Act, CRA publications and taxpayer representations.

Technical Interpretation - External

22 January 2020 External T.I. 2014-0559281E5 F - T5008
Unedited CRA Tags: 
Section 230 of Regulations, section 49 of ITA.
Full Title: 
22 January 2020 External T.I. 2014-0559281E5 F - T5008

22 January 2020 External T.I. 2014-0559281E5 F - T5008 -- attach -- Subsection 49(1)

Submitted by narmstrong on Fri, 04/10/2020 - 18:20
writing of call option (with deemed nil ACB) is reported as having nil “cost” on T5008

Respecting the application of s. 49(1) to the writing and sale on an exchange of a naked call option and the reporting of the “cost” of the...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) option writer can deduct its expenses from deemed s. 49(1) proceeds 125
Tax Topics - Income Tax Regulations - Regulation 230 - Subsection 230(2) “cost” of call options closed out by writer is nil, not the cost of offsetting call option purchase/cost re short sale is the FMV of the borrowed shares 351
Tax Topics - Income Tax Act - Section 9 - Computation of Profit cost of short sale is FMV of borrowed shares 59
Full Title: 
22 January 2020 External T.I. 2014-0559281E5 F - T5008

22 January 2020 External T.I. 2014-0559281E5 F - T5008 -- attach -- Subparagraph 40(1)(a)(i)

Submitted by narmstrong on Fri, 04/10/2020 - 19:29
option writer can deduct its expenses from deemed s. 49(1) proceeds

The T5508 Guide states:

Report only the total proceeds in box 21. Do not deduct any expenses from the proceeds… .

Respecting the application...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 49 - Subsection 49(1) writing of call option (with deemed nil ACB) is reported as having nil “cost” on T5008 99
Tax Topics - Income Tax Regulations - Regulation 230 - Subsection 230(2) “cost” of call options closed out by writer is nil, not the cost of offsetting call option purchase/cost re short sale is the FMV of the borrowed shares 351
Tax Topics - Income Tax Act - Section 9 - Computation of Profit cost of short sale is FMV of borrowed shares 59
Full Title: 
22 January 2020 External T.I. 2014-0559281E5 F - T5008

22 January 2020 External T.I. 2014-0559281E5 F - T5008 -- attach -- Subsection 230(2)

Submitted by narmstrong on Fri, 04/10/2020 - 22:30
“cost” of call options closed out by writer is nil, not the cost of offsetting call option purchase/cost re short sale is the FMV of the borrowed shares

CRA responded to various questions respecting the completion of Box 20 of Form T5008 in the context of:

  • the sale (or closing out by the...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 49 - Subsection 49(1) writing of call option (with deemed nil ACB) is reported as having nil “cost” on T5008 99
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) option writer can deduct its expenses from deemed s. 49(1) proceeds 125
Tax Topics - Income Tax Act - Section 9 - Computation of Profit cost of short sale is FMV of borrowed shares 59
Full Title: 
22 January 2020 External T.I. 2014-0559281E5 F - T5008

22 January 2020 External T.I. 2014-0559281E5 F - T5008 -- attach -- Computation of Profit

Submitted by narmstrong on Sat, 04/11/2020 - 00:43
cost of short sale is FMV of borrowed shares

CRA indicated that in a short sale, the cost of the shares sold short is the fair market value of the shares at the time they are borrowed for the...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 49 - Subsection 49(1) writing of call option (with deemed nil ACB) is reported as having nil “cost” on T5008 99
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) option writer can deduct its expenses from deemed s. 49(1) proceeds 125
Tax Topics - Income Tax Regulations - Regulation 230 - Subsection 230(2) “cost” of call options closed out by writer is nil, not the cost of offsetting call option purchase/cost re short sale is the FMV of the borrowed shares 351

Principales Questions: 1. Which amount must be included in box 20 (cost) of T5008 in the situations described in questions 2 to 5 (sales of naked options, followed by (i) expiration of option, (ii) exercise of option, (iii) closing out by the acquisition of an offsetting option on the market)? 2. Which amount must be included in box 20 of T5008 when there is a short sale of shares in the situations described in questions 6 (identical shares purchased by the short seller and delivered to the lender in the same taxation year as the short sale) and 7 (transfer of shares by the short seller to the lender is made after the taxation year of the short sale)?

Position Adoptée: 1. Zero or leave box blank. 2. Cost of the shares borrowed.

Raisons: 1. Subsection 49(1), options issued have no cost. 2. Previous CRA positions.