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: Will the CCRA administer subsection 87(4) to reflect the amendments to section 47 that allow for the separate pooling of the ACBs of shares acquired through stock options?
Position: No
Reasons: The legislation is clear. Finance would have to provide a legislative amendment.
2002-016746
XXXXXXXXXX Renée Shields
(613) 948-5273
August 14, 2003
Dear XXXXXXXXXX:
Re: Adjusted Cost Base of Stock Option Shares following Amalgamation
This is in response to your letter of October 9, 2002 inquiring about the application of subsection 87(4) of the Income Tax Act (the "Act") to the calculation of a taxpayer's capital gain upon disposition of shares acquired under a stock option agreement.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.
A corporation's securities of the same class are generally considered to be "identical properties". Accordingly, when calculating the capital gain (loss) upon the disposition of securities, subsection 47(1) of the Act applies to average the cost of securities acquired at different times resulting in one pool of identical securities with one adjusted cost base ("ACB"). However, subsection 47(3) of the Act was added in 2001 (applicable to years after 1999) and provides that certain securities are deemed not to be identical properties. The application of subsection 47(3) of the Act results in separate pools of stock option securities with a discrete ACB for each pool.
Subsection 87(4) of the Act applies in situations in which corporations amalgamate. Where securities of the new, amalgamated corporation ("AmalCo Shares") are issued in exchange for securities of a predecessor corporation ("PriorCo Shares"), subsection 87(4) of the Act effectively causes an averaging of the ACBs of the PriorCo Shares in computing the ACB of the AmalCo Shares received as a result of the amalgamation. If, by operation of subsection 47(3) of the Act, an individual had separate pools of stock option securities from PriorCo, each with its own ACB, subsection 87(4) of the Act would result in the averaging of the ACB of all of the securities that are held in the separate pools of stock option securities.
It would appear that the ability to retain separate ACBs for the pools of stock option securities as provided by subsection 47(3) of the Act does not extend to an amalgamation situation. An intention to do so should be reflected in the legislation. While the CCRA is responsible for administering and enforcing the Act, we note that the Department of Finance is responsible for tax policy and any proposed changes to the Act.
We trust that these comments will be of assistance.
Yours truly,
Mickey Sarazin, C.A.
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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