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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Can an amount paid by an employer for unvested stock option rights held by a terminated employee qualify for the deduction under paragraph 110(1)(d) of the Act?
Position: Yes.
Reasons:
Subject to the conditions in paragraph 110(1)(d) being satisfied, the proceeds received in respect of the disposition of unvested stock option rights may qualify for the deduction under paragraph 110(1)(d) of the Act.
XXXXXXXXXX 2001-010014
. M.P. Sarazin, C.A.
January 8, 2002
Dear XXXXXXXXXX:
Re: Unvested Stock Option Rights and Paragraph 110(1)(d)
This is in reply to your letter of September 4, 2001, requesting a ruling regarding the amount paid by an employer to a terminated employee for his or her unvested stock option rights.
Where an employee was granted a stock option agreement and the shares under the stock option agreement satisfied all of the requirements under paragraph 110(1)(d) of the Income Tax Act (the "Act"), you ask whether the amount paid by the employer to the employee on the termination of his or her employment in respect of unvested stock option rights would be eligible for the deduction under paragraph 110(1)(d) of the Act.
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.
The Canada Customs and Revenue Agency's general views regarding stock options are found in Interpretation Bulletin IT-113R4 titled "Benefits to Employees - Stock Options". Paragraph 1 of IT-113R4 makes it clear that the proceeds of disposition received by an employee for the disposition of his or her rights under a stock option agreement will usually be included in the employee's employment income in the year of disposition. This amount is included in the employee's income under paragraph 7(1)(b) of the Act. This would be the case whether or not the proceeds of disposition are received in respect of vested or unvested stock option rights.
Paragraph 11 of IT-113R4 states that the amount included in an employee's income under paragraph 7(1)(b) may be entitled to a deduction under paragraph 110(1)(d) of the Act if the conditions in that provision are met. The determination of whether or not the conditions in paragraph 110(1)(d) are satisfied is a question of fact.
We trust these comments will be of assistance.
Yours truly,
Roberta Albert, C.A.
for Director
Financial Industries Division
Income Tax Rulings Directorate
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