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:
Where the proposed conditions are satisfied, can we confirm that a taxpayer will be able to specifically identify the option shares that are being disposed of under proposed subsections 7(1.31) and 47(3)?
Position: Provided the amendments are enacted as proposed, yes.
Reasons:
The comments for proposed subsection 7(1.31) state that, where a taxpayer disposes of a security that is identical to other securities owned by the taxpayer and the security was acquired under a security option agreement, the taxpayer can designate which securities are being disposed of. In addition, proposed subsection 47(3) deems certain securities subjected to subsection 7(1.31) not to be identical to any other securities for the purposes of subsection 47(1) of the Act.
XXXXXXXXXX 2001-006402
M. P. Sarazin, CA
March 6, 2001
Dear XXXXXXXXXX:
Re: Proposed Subsections 7(1.31) and 47(3)
This is in response to your letter dated January 5, 2001, requesting confirmation that, under proposed subsections 7(1.31) and 47(3) 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 (the "Proposed Legislation"), a taxpayer will not have to average the specifically identified shares that were acquired and disposed of with other identical properties held at that time.
You also ask how the proposed amendments will affect the Canada Customs and Revenue Agency's new position described in Technical News No. 19 under the heading Disposition of Identical Properties Acquired Under a Section 7 Securities Option (the "New Position").
The determination of how proposed legislation will be applied by the Canada Customs and Revenue Agency can only be determined after the final legislation has been passed into law. Consequently, we can only provide general comments which will be contingent on the proposed amendments being passed in the form described in the above Proposed Legislation. The following comments are based on the proposed amendments and explanatory notes described in the Proposed Legislation.
Where the conditions described in proposed subsection 7(1.31) are satisfied, a taxpayer that disposes of a security that is identical to other securities owned by the taxpayer can designate the particular security that is subject to the disposition. One of the conditions is that the particular security must have been acquired under an employee option agreement. The provisions of proposed subsection 7(1.31) are designed to accommodate the specific identification position expressed in the New Position. Proposed subsection 47(3) provides that securities to which proposed subsection 7(1.31) apply are deemed, for the purposes of the cost-averaging rules in subsection 47(1) of the Act, not to be identical to any other securities owned by the taxpayer.
The Agency's New Position 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 held at that time. The provisions of subsection 47(1) apply to average the cost amount paid for the newly acquired securities with the adjusted cost base of the previously held identical securities resulting in a pool of identical securities with the new average cost (i.e., the previously held identical securities) and a pool of securities with the new average cost plus the paragraph 53(1)(j) increase (i.e., the new acquired identical securities). Under the New Position, where there is a correlation between an acquisition of securities under an option agreement and the disposition of identical securities, the taxpayer is entitled to specifically identify the newly acquired shares as those being disposed of at that time.
Under proposed subsection 47(3), the provisions of subsection 47(1) of the Act will not apply where shares are subject to proposed subsection 7(1.31). Consequently, taxpayers will be able to specifically identify the shares that are being disposed of where the conditions are satisfied and the cost of such shares will not have to be averaged with other identical properties held at the time of acquisition as currently required under the New Position.
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
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