CRA switches to OECD method for apportioning employee stock option benefits

CRA has announced a change to its policy for determining what portion of a stock option benefit is attributable to Canada where the employee in question has worked both in Canada and abroad.  Rather than apportioning on the basis of the relative days of Canadian employment in the year of grant, CRA will use the methodology in the OECD Commentary, which typically refers instead to the relative days of Canadian employment in the vesting period. This policy change is effective for stock options exercised after 2012.

However, any specific Treaty provisions to the contrary will prevail.  For example, there is a somewhat different methodology under Annex B to the 5th Protocol to the Canada-U.S. Treaty, which is based on the relative employment days between grant and exercise, rather than just the vesting period (see 6 July 2012 Memorandum 2012-0440741I7 summarized under Treaties - Article 15).

Neal Armstrong.  Summary of 25 September 2012 B.C. Canadian Tax Foundation Conference, Q. 17, 2012-0459411C6 under s. 115(1)(a)(i).