CRA treats amounts paid by a Canadian sub, to reimburse its U.S. parent for dilution under SARs that could be settled in cash at the issuer’s option, as deductible
A Canadian subsidiary (Canco) of a U.S. parent (USco) was charged by USco for the “costs” to it in issuing stock to Canco employees under various incentive plans at a discount, and Canco took the position that s. 7(3)(b) did not prohibit the deduction by it of those “reimbursement” payments. The Directorate accepted this position respecting Stock Appreciation Rights (SARs) provided to the Canco employees given that the choice to satisfy them in cash or shares was in the discretion of the USco compensation committee. However, it considered that s. 7(3)(b) applied to a performance share plan (where the number of shares to be received by the employee was contingent on assessed performance over a three year period), as well as to a number of other plans where the USco obligation to issue shares was less contingent.
Neal Armstrong. Summary of 29 July 2016 Internal T.I. 2015-0600941I7 under s. 7(3)(b).