CRA imputes full basis to employee stock options passing to an estate

Although stock options generally are not capital property (see 2001-009124), as their disposition gives rise to employment income rather than capital gains, CRA accepts that unexercised employee stock options which pass to an estate are capital property to the estate.  This creates an issue as there is no provision like s. 70(5)(b) that specifically deems the options (viewed as not qualifying to the deceased individual as capital property) as having been acquired by the estate at a cost equal to their fair market value on death.

No problem!  CRA generally will apply s. 69(1)(c) to deem the estate to have acquired the options at their fair market value.

However, the deceased employee, who will receive deemed employment income on death equal to the same amount, will not be entitled to a 1/2 deduction (under s. 110(1)(d)) - assuming that no election was made under s. 110(1.1).

Neal Armstrong.  Summaries of 21 December 2012 Memorandum 2009-0327221I7 under ss. 110(1)(d) and 69(1)(c).