An individual who donated some of his employee stock options on the shares of a public company to arm's length registered charities, claimed the $3M fair market value of the donated options for charitable tax credit purposes, but did not include any portion of the donated options in his income under TA s. 50 (the equivalent of ITA s. 7(1)(b)). This reporting was confirmed in the Court of Quebec on the basis inter alia that TA s. 54 (the equivalent of ITA s. 7(3)(a) established that the stock option rules (contained in TA s. 49 et seq.) constituted a “complete code” so that TA s. 422 (equivalent to ITA s. 69(1)(b)) did not apply to deem the “value of the consideration for the disposition” received by him to be equal to the options’ fair market value of $3M, rather than the nil proceeds in fact received.
In disagreeing with this interpretation and before allowing the ARQ’s appeal, Cournoyer JCA stated (at paras. 64, 70, TaxInterpretations translation):
TA section 54 only has the effect of giving precedence to the application of sections 49 et seq. over any other section providing for a taxability rule. It does not prevent the ARQ from using the presumptions provided for in the T.A. to calculate the taxable income of the taxpayer. …
While section 54 ensures that stock option benefits are subject to sections 49 et seq. of the T.A. and excludes them from the scope of sections 36 and 37 [equivalent to ITA ss. 5, 6], it is not, in the absence of clear legislative indications to that effect, a code so complete and airtight that the application of section 422 is excluded.
He also found to be “unconvincing” (para. 72) a further argument that s. 422 did not feed into s. 50 because it did not explicitly deem the FMV proceeds for the gift to be “consideration” received by the employee for the option disposition, as required by s. 50.
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