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 an employee stock option be contributed to an RRSP?
Position: Possibly
Reasons: The stock option must be a qualified investment.
XXXXXXXXXX 2001-007568
S. E. Thomson
May 10, 2001
Dear XXXXXXXXXX:
Re: Employee stock options in an RRSP
This is in response to your letter of March 13, 2001 in which you ask if it is possible to contribute stock options to a trust governed by a registered retirement savings plan (an "RRSP"). We presume you are referring to employee stock options to which section 7 of the Income Tax Act (the "Act") applies.
Your questions appear to be hypothetical in nature. Accordingly, we provide our technical interpretation of specific provisions relevant to your questions. Although a technical interpretation is not binding on the Department, you may find our comments helpful.
Investments that are qualified for an RRSP are set out in section 146 of the Act and section 4900 of the Income Tax Regulations (the "Regulations"). Paragraph 4900(1)(e) of the Regulations prescribes a warrant or right giving the owner thereof the right to acquire either immediately or in the future property all of which is a qualified investment for the plan trust to be a qualified investment. In other words, if the employee stock option gives the owner the right to acquire a qualified investment, the stock option will itself be qualified for an RRSP. More information may be obtained from Interpretation Bulletin IT-320R2, entitled Registered Retirement Savings Plans - Qualified Investments, available on our website www.ccra.gc.ca. Please note that paragraph 14 of IT-320R2 does not reflect the June 23, 1994 amendment to the Regulations removing the requirement that a warrant or right be listed on the Toronto Futures Exchange or on a prescribed stock exchange.
By virtue of paragraph 7(3)(a) of the Act, there is no income inclusion to the employee at the time the employee transfers the employee stock option to an RRSP. The employee will be entitled to a deduction under paragraph 146(5) or (5.1) of the Act to the extent permitted by those paragraphs equal to the fair market value of the option at the time of the transfer. When the RRSP exercises the option, pursuant to paragraph 7(1)(c) of the Act, the employee must include in income a benefit equal to the amount by which the value of the securities acquired exceeds the total of the amount paid by the RRSP to acquire the securities and the amount paid by the employee to acquire the option. The employee may be entitled to a deduction under paragraph 110(1)(d) of the Act if the conditions therein are otherwise met.
If the securities acquired by the RRSP are subsequently sold and the entire proceeds paid to the annuitant of the RRSP, the entire proceeds will be taxable to the annuitant or the spouse, as applicable, by virtue of subsections 146(8) or 146(8.3) of the Act. These provisions apply to tax the proceeds paid to the annuitant even though the stock option employment benefit has been previously taxed to the employee under paragraph 7(1)(c) of the Act.
We trust that these comments will be of assistance.
Yours truly,
Roberta Albert, C.A.
for Director
Financial Industries Division
Income Tax Rulings Directorate
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001