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: Is the value of shares awarded to an employee under an employee stock bonus award plan a taxable benefit? If so, is withholding of CPP and income tax required?
Position: Yes to both questions.
Reasons: Even though the quantum of the award depends upon the profitability of the corporate group for a given fiscal year, the arrangement is still "an agreement to issue shares" (albeit for no consideration) within the meaning of section 7. Per Employer's Guide - Taxable Benefit (T4130), paragraph 2.24 the value of the benefit is subject to CPP and income tax withholding (but not EI).
November 1, 2000
VANCOUVER TSO HEAD OFFICE
Income Tax Rulings Directorate
Attention: Harvey Gigun G. Kauppinen
Business Window (613) 957-8971
Client Services Division
2000-005147
XXXXXXXXXX ("Employer")
XXXXXXXXXX
Employee Stock Bonus Award Plan
The above-named Employer has requested our opinion concerning taxation and the withholding requirements in respect of shares awarded to certain of its employees under an employee stock bonus plan ("Plan") implemented by the Employer's foreign parent.
We have reviewed the Plan text and it is our opinion that the Plan is "an agreement to issue shares" within the meaning of section 7 of the Income Tax Act ("Act"). Consequently, the value of the shares awarded to the employee should be reported as a taxable benefit on the employee's T4 for the calendar year in which the shares are awarded. This conclusion is not changed by the fact that the Plan stipulates that the shares may not be sold for a period of time (XXXXXXXXXX years) after they are awarded to the employee. However, as noted in IT-113R4 at paragraph 9, the fair market value of the shares at the date of the award may be discounted for the trading restriction in arriving at the value of the taxable benefit to be reported.
As noted in the Employers Guide - Taxable Benefits (T4130) under "Stock Options", the taxable benefit is subject to CPP and income tax (but not EI) withholding. Also, the employee will not be entitled to a deduction under paragraph 110(1)(d) of the Act since the shares are acquired for no consideration.
Since the bonus stock awards for 1999 were issued in XXXXXXXXXX 2000 and therefore the transaction is complete, we have directed our reply to your office rather than to the client.
As agreed in our telephone conversation (Spice/Gigun) of October 31, 2000, please respond to the client directly. The person at XXXXXXXXXX to contact is:
XXXXXXXXXX
If there are further questions, please contact Gord Kauppinen at (613) 957-8971.
P. Spice
Manager
Deferred Income Plans Section
Income Tax Rulings Directorate
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