1 March 2001 External T.I. 2000-0062305 - Stock Option Plan admin fees

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:

Will stock option plan administration fees charged by a parent corporation to its subsidiary corporation be deductible by the subsidiary corporation?

Position: Question of fact.

Reasons:

Plan administration and implementation costs are deductible by Canadian corporations where they are reasonable. In this case, we have no information to make this determination.

XXXXXXXXXX 2000-006230
M. P. Sarazin, CA
Attention: XXXXXXXXXX

March 1, 2001

Dear Sirs:

Re: Administration Fees Relating to a Stock Option Plan

This is in reply to your facsimile of December 19, 2000, requesting our views regarding the deductibility by a Canadian subsidiary of stock option plan administration expenses charged by its foreign parent.

Comments

In your letter you have outlined an actual fact situation related to completed transactions. As noted in Information Circular 70-6R4 (available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html), this directorate can only provide advance income tax rulings in respect of specific proposed transactions. We must advise you that the review of completed transactions falls within the responsibility of tax services offices. Consequently, we can only provide you with the following general comments.

In our view, a Canadian corporation can deduct its cost of implementing and administering a stock option plan under paragraph 18(1)(a) of the Income Tax Act (the "Act") where the amounts were considered reasonable for purposes of the Act.

The determination of whether fees charged by a foreign parent to a Canadian subsidiary for the participation of its employees in the foreign parent's stock option plan would be deductible under paragraph 18(1)(a) of the Act is a question of fact. We would have to review the terms of the stock option plan, the makeup of the administration expenses and the allocation method used by the foreign parent in order to make this determination. We would also look at the reasonableness of any amount claimed under paragraph 18(1)(a) of the Act.

In our view, where a foreign parent acquires its shares on the open market and such shares are held in a special treasury account until they are distributed to employees under the foreign parent's stock option plans, the acquisition of such shares on the open market does not constitute an administration expense of the stock option plan.

We have forwarded a copy of your letter to Mr. Marc Normand, Manager, Policy and Technical Services Section, Trust Accounts Division. They will respond to your questions regarding the withholding requirements under subsection 153(1) of the Act and the reporting requirements under section 210 of the Income Tax Regulations.

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