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: Can we provide a numerical example to illustrate the new specific identification position described in Income Tax Technical News # 19?
Position: Yes.
Reasons: We prepared an example illustrating the identical property provisions and the specific identification position described in Technical News # 19.
XXXXXXXXXX 2000-003541
M. P. Sarazin
Attention: XXXXXXXXXX
July 20, 2000
Dear Sirs:
Re: Disposition of Identical Properties Acquired Under a Section 7 Securities Option
This is in response to your facsimile of July 3, 2000, asking us to provide you with a numerical example to illustrate the new position expressed in Income Tax Technical News #19 regarding the disposition of identical properties acquired under a section 7 securities option.
Example
An individual owns 100 shares of her employer, Publico and the individual's adjusted cost base of the 100 shares of Publico is $1,000. The individual acquires an additional 200 shares under an option granted to her by Publico and she immediately sells the shares for their fair market value. Under the securities option, the individual paid $25 per share at a time that the shares have a fair market value of $40 per share.
The Income Tax Act (the "Act") would apply as follows:
Employment Benefit
Paragraph 7(1)(a) of the Act benefit (200 shares x ($40 - $25)) $3,000
Application of subsection 47(1) of the Act
Subsection 47(1) of the Act
Adjusted cost base of the original 100 shares $1,000
Cost of the 200 shares acquired under the option (200 x $25) $5,000
Subsection 47(1) cost of identical properties $6,000
Cost per share ($6,000/300) $20
Adjusted Cost Base of Original 100 Shares
Subsection 47(1) amount (100 x $20) $2,000
Adjusted Cost Base of the Newly Acquired 200 Shares
Subsection 47(1) amount (200 x $20) $4,000
Paragraph 53(1)(j) adjustment (paragraph 7(1)(a) benefit) $3,000
$7,000
Computation of Capital Gain Using Specific Identification
Proceeds of disposition (200 x $40) $8,000
Adjusted cost base of newly acquired shares $7,000
Capital gain $1,000
Computation of Capital Gain under Pro-Rata Disposition (Former Position)
Proceeds of disposition (200 x $40) $8,000
Adjusted cost base of 66 original shares (66 x $20) $1,320
Adjusted cost base of 134 new shares (134 x ($7,000/200)) $4,690 $6,010
Capital gain $1,990
We trust the above examples will be helpful.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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