CRA confirms feasibility of both types of cross-border stock option recharge agreements (Black-Scholes grant-date reimbursement, or in-the-money exercise-date reimbursement)

CRA has published a second (internal) interpretation on an apparent recharge agreement between a Canadian subsidiary and its public US parent in which Canco reimbursed USCo for the fair value of the stock options granted to Canco employees on the grant date – but with more granularity than the first one (29 April 2013 T.I. 2010-0356401E5).  Among other points:

• It is acceptable to use either recharge method (reimbursing for the fair value of options when granted, or reimbursing for the in-the-money value when exercised)
• The Black-Scholes option pricing method (with the appropriate adjustments) is acceptable
• If the recharge agreement (in this case, a possible oral agreement) was not in place from the beginning, and was subsequently entered into, "only the portion of the fair value of the options on grant date attributable to the vesting period after the new agreement is in place" could be paid to USCo without ss. 15(1) and 214(3)(a) applying

Neal Armstrong.  Summaries of 1 May 2013 Memorandum 2009-0321721I7 under s. 15(1) and General Concepts - Fair Market Value - Options.