CRA countenances arrangements for reimbursement by subsidiary employers for the fair value of parent LTIP stock option grants as at the grant date

CRA historically has indicated that a "reimbursement" payment by a non-resident subsidiary to its Canadian parent for the difference between the fair market value of shares of the parent company on the date of exercise of options on the shares of the parent previously granted to employees of the subsidiary, and the exercise price, generally does not result in an inclusion in the income of the parent under s. 15(1), 12(1)(x) or 90 (see 9 October 2001 T.I. 2000-003491) - and conversely re s. 214(3)(a) in the non-resident parent/Canadian subsidiary employer situation (see 1999 Ruling 990259 for a variation on this).

CRA has now indicated that there will be no benefit (giving rise to Part XIII tax under s. 214(3)(a)) where the Canadian employer/subsidiary reimburses its non-resident parent for the fair value (as computed under IFRS-2) of employee stock option grants at the date of the option grant.  It seems to be implicit in this that the Canadian sub would not be expected to make a further reimbursement payment on option exercise.

Neal Armstrong.  Summary of 29 April 2013 T.I. 2010-035640 under s. 15(1).