Fink – Federal Court of Appeal considers it reasonable for CRA to not recommend FAA relief for s. 7 stock option benefits, as contrasted to s. 7 stock purchase plan benefits

The taxpayer realized s. 7 stock option benefits, and requested relief under the Financial Administration Act after having disposed of the shares in a subsequent year at a capital loss, with no ability to carry back that loss to offset any s. 7 benefit. On his appeal to the Federal Court of CRA’s refusal to recommend remission, he argued that he should be treated the same as employees of SDL Optics, who had been granted remission orders respecting their inability to offset capital losses against s. 7 income realized under a stock purchase plan.

Dawson JA agreed with the view of Roussel J below that it was reasonable for CRA to consider that the taxpayer’s stock option benefits were categorically different from the s. 7 benefits at issue in the SDL case, stating:

In the case of SDL Optics, employees who purchased shares through a stock option plan, as opposed to a stock payment plan, were not entitled to remission. This reflects the fact that a stock option plan provides greater flexibility to employees. The appellant had the option to purchase, or not purchase, shares at a designated price for a specified period of time regardless of shifts in market value during that period.

Incidentally, the Federal Court reasons (2018 FC 936) reveal that the taxpayer had got CRA to agree to a reduction pursuant to a Tax Court consent judgment to the quantum of his stock option benefits based on discounting the shares' value from their TSX trading price by 30%. Thus he had been largely successful in his argument that: "since the shares acquired were subject to numerous blackout periods and he was considered an insider of [the employer] for the purposes of the TSX and relevant shares legislation and regulations, the assessed value of the shares should not be more than 60% of the trading price on the date of purchase."

Neal Armstrong. Summaries of Fink v. Canada (Attorney General), 2019 FCA 276 under Financial Administration Act, s. 23(2) and ITA s. 7(1)(a).