14 July 2000 External T.I. 1999-0010505 - Immigration S128.1

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: What are the Canadian income tax implications to an immigrating individual as a consequence of the individual owning stock options granted by a foreign corporation (and employer) under paragraph 128.1(1)(b) of the Act.

Position: No deemed disposition/re-acquisition under paragraph 128.1(1)(b) on immigration.

Reasons: The law.

XXXXXXXXXX 		1999-001050

Attention: XXXXXXXXXX

July 14, 2000

Dear Sirs:

Re: Stock Options of a Foreign Corporation Owned at the Time of Immigration

This is in reply to your letter of July 7, 1999 wherein you requested our opinion on the income tax consequences under paragraph 128.1(1)(b) of the Income Tax Act ("the Act") in the following situation.

The situation described in your letter is briefly restated as follows:

An individual, a citizen of the United States of America ("U.S."), received stock option benefits from his/her employer, a U.S. public corporation ("U.S. Corporation"), while the individual was a resident of the U.S. for U.S. tax purposes. The stock options give the individual the right to acquire shares of U.S. Corporation. Before any of the stock options were exercised the individual ceased working for U.S. Corporation and became a Canadian resident for the purposes of the Act. The individual's new Canadian employer deals at arm's length with U.S. Corporation. At no time prior to the individual's move to Canada did the individual reside in Canada or perform services for U.S. Corporation in Canada.

You ask what the Canadian income tax implications are to the individual under paragraph 128.1(1)(b) of the Act where the individual owns stock options at the time of immigration. You also ask whether section 7 of the Act will apply if these stock options are exercised while the individual is a resident of Canada and whether the deduction provided for in paragraph 110(1)(d) of the Act could be claimed.

As we discussed (Cooke/XXXXXXXXXX) on Friday July 7, 2000 you are aware that our position on this matter was addressed in our response to an identical question at the 1999 APFF Conference ("Q.1"). You indicated that you disagree with our response that subparagraph 128.1(1)(b)(v) of the Act would apply such that the individual would not be deemed to have disposed of (and re-acquired) the stock options immediately before the time the individual immigrated to Canada.

Recent draft legislation (see Notice of Means and Ways Motion dated June 5, 2000) proposes to amend section 128.1 (including subparagraph 128.1(1)(b)(v)) for changes in residence that generally occur after October 1, 1996. Under these proposals, stock option rights that are currently described in subparagraph 128.1(1)(b)(v) will continue to be excluded from the deemed disposition/acquisition rules on immigration under proposed subparagraph 128.1(1)(b)(iv) of the Act. Stock options will represent an "excluded right or interest" as defined in proposed paragraph 128.1(10)(c) of the Act if they represent a right of the individual under an agreement referred to in subsection 7(1) or (1.1).

It is our view that the stock options granted by U.S. Corporation that are owned by the individual at the time the individual immigrates to Canada will represent a right of the individual under an agreement referred to in subsection 7(1) and will, therefore, be excluded from the deemed disposition/re-acquisition rules as described above. As a result our position on this matter remains unchanged from that set out in our response to Q.1 of the 1999 APFF Conference.

Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R3.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
- 4 -