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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: If a parent corporation and a subsidiary enter into an arrangement under which the subsidiary pays to its parent corporation an amount equal to the stock option benefit enjoyed by the subsidiary's employees on the exercise of options to acquire shares of the parent, would the payment be included in the income of the parent under subsection 15(1) or paragraph 12(1)(x), or would it be a dividend to the parent for purposes of section 90 of the Act?
Position: No, in cases where the payment is in respect of services rendered by the employees to the subsidiary, for options granted after the date of the arrangement, or for the increase in the stock option benefit that arises after the date of the arrangement on pre-existing options.
Reasons: It would not be unreasonable for the subsidiary to reimburse the parent for that portion of the employment benefit that has effectively been borne by the parent on the subsidiary's behalf.
XXXXXXXXXX 2000-003491
S. E. Thomson
October 9, 2001
Dear XXXXXXXXXX:
Re: Reimbursement of employee stock option benefit
We are responding to your letters of May 9, 2000 and June 28, 2000 XXXXXXXXXX regarding the taxation of a payment received by a parent company from its subsidiary for that portion of a stock option benefit enjoyed by the subsidiary's employees on the exercise of an option to acquire shares in the parent.
Specifically, the subsidiary will reimburse the parent company for the difference between the fair market value of the shares of the parent company on the date of exercise, and the amount paid to the parent company by the employees to acquire the shares. You have asked us to confirm that the payment by the subsidiary to the parent would not be taxable to the parent under subsection 15(1) or paragraph 12(1)(x) of the Income Tax Act (the "Act"), nor would it be a dividend to the parent for purposes of section 90 of the Act.
XXXXXXXXXX
Although we are precluded from commenting directly on your situation, we are able to offer the following comments on the relevant provisions that may apply. Please note that these comments are general in nature, and may or may not apply in your situation. As such, the comments are not binding on the Canada Customs and Revenue Agency.
A parent corporation and a subsidiary may enter into an arrangement where, in connection with an agreement to issue shares of the parent corporation to employees of the subsidiary, it is expected that the subsidiary will pay to the parent an amount equal to the stock option benefit enjoyed by the employees of the subsidiary upon the exercise of the options, in respect of a period during which services were rendered by the employees to the subsidiary. The subsidiary would make the payment to the parent in respect of options granted after the arrangement is in place, and, otherwise, in respect of the increase in the stock option benefit that, in the circumstances may reasonably be considered to have arisen (taking into account all relevant considerations concerning the arrangement) after the arrangement is in place on options that were granted prior to the arrangement.
In our opinion, a payment made under an arrangement as set out in the preceding paragraph would not be included in the income of the parent under subsection 15(1) or paragraph 12(1)(x) of the Act, nor would it be a dividend to the parent for purposes of section 90 of the Act.
Yours truly,
R. Albert
For/Director
Financial Industries Division
Income Tax Rulings Directorate
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