6 March 2001 External T.I. 2000-0062295 - 53(1)(j), 47(1), immediate disposition

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 numerical example provided in 2000-0035415 inconsistent with the comments provided under the heading "Disposition of Identical Properties Acquired Under a Section 7 Securities Option" in Technical News No. 19?

Position: No.

Reasons:

The comments state that, where an additional security is acquired after the securities option is exercised, subsection 47(1) would apply to average the paragraph 53(1)(j) increase. The comments do not state that subsection 47(1) will not apply to the securities acquired under the securities option.

XXXXXXXXXX  	2000-006229
		.P. Sarazin, CA
March 7, 2001

Dear XXXXXXXXXX:

Re: Subsection 47(1) and Paragraph 53(1)(j)

This is in response to your letter dated December 12, 2000, requesting a review of the numerical example provided in our document 2000-0035415 to determine whether the example is inconsistent with the views of the Canada Customs and Revenue Agency (the "Agency") expressed under the heading "Disposition of Identical Properties Acquired Under a Section 7 Securities Option" in Technical News No. 19 (the "Views").

You are of the view that the numerical example contradicts the policy outlined in the Views because subsection 47(1) of the Act was not intended to apply to the acquisition and immediate disposition of identical properties.

Comments

The Agency's revised position as described in the Views is that the paragraph 53(1)(j) increase in the adjusted cost base resulting from a stock option benefit will not be averaged over all of the identical properties. The Views do not state that subsection 47(1) will not apply to securities acquired under the stock option. We provided the numerical example in our document 2000-0035415 to illustrate how the Views would apply to an acquisition and immediate disposition of identical properties. The numerical example is not contrary to the policy outlined in the Views.

In any case, the position regarding the application of subsection 47(1) of the Act as expressed in the Views is no longer applicable because of the proposed amendments described in the Legislative Proposals and Explanatory Notes Relating to Income Tax published by The Honourable Paul Martin, P.C., M.P. Minister of Finance in December 2000.

Proposed subsection 7(1.31) applies when a taxpayer disposes of a security (acquired under a stock option) that is identical to other securities owned by the taxpayer. The provisions of proposed subsection 7(1.31) are designed to accommodate the specific identification position expressed in the Views.

However, proposed subsection 47(3) further provides that, in computing the cost of the disposed shares, securities to which proposed subsection 7(1.31) apply, are deemed, for the purpose of the cost-averaging rule in subsection 47(1), not to be identical to any other securities owned by the taxpayer. Consequently, where subsection 47(3) applies, the cost of the acquired shares that are being disposed of will not be averaged with the previously held shares. These proposals apply to securities acquired after February 27, 2000. It should be noted that proposed subsection 47(3) is required to except a security from the general application of subsection 47(1) of the Act.

We trust the above comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch