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: Would the fact that the option price under a call option is more than the fair market value of the share that may be acquired under the option result in the option ceasing to exist for purposes of the foreign property limitations?
Position: No.
Reasons: An option will exist until it expires. The fact that an option holder would not exercise his or her right under the option would not result in the option ceasing to exist.
XXXXXXXXXX 2000-002861
M. P. Sarazin
August 22, 2000
Dear XXXXXXXXX :
Re: Call Option and Foreign Property
This is in response to your letter of May 25, 2000, regarding call options on stocks of corporations listed on foreign prescribed stock exchanges which are "foreign property" within the meaning assigned by subsection 206(1) of the Income Tax Act (the "Act").
Call options confer a right to purchase shares for a specified amount (the "strike price") up to the expiry date of the option. You are of the opinion that where shares trade for less than the strike price under a call option, the call option cannot be exercised, and therefore there exists no right to acquire the shares. Consequently, the call option would not constitute foreign property when it is held by a deferred plan.
The Canada Customs and Revenue Agency's (the "Agency") general views regarding foreign property held in registered plans are found in Interpretation Bulletin IT-412R2 (Foreign Property of Registered Plans). (Interpretation bulletins are available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html). As noted in 3(d) of IT-412R2, a right or warrant to acquire a share which would, if it were acquired, be foreign property is itself foreign property.
In our view, a call option would exist until its expiry date. Whether or not a registered retirement savings plan ("RRSP") trust would exercise the call option is not relevant in determining whether the call option exists for purposes of the Act. We believe that the difference between the strike price and fair market value of the underlying share is relevant in determining the fair market value of the call option. Consequently, where the call option provides an RRSP with the right to acquire shares of a foreign corporation, the call option would constitute foreign property for purposes of the application of Part XI of the Act until the call option is sold, exercised or expires.
We trust that the above comments will be of assistance.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2000
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2000
Email this Content