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 benefits in respect of employee stock options be included in computing compensation in respect of an RPP?
Position: Yes.
Reasons:
Pursuant to paragraph (a) of definition of "compensation" in subsection 147.1(1) of the Act, compensation includes amounts in respect of an office or employment that are required by section 5 or 6 to be included in income. Benefits calculated pursuant to section 7 are included in income pursuant to paragraph 6(1)(a) of the Act.
November 5, 2002
REGISTERED PLANS DIRECTORATE HEADQUARTERS
John O'Meara, Director P. Kohnen, CMA
Compliance Division 957-2093
Attention: Tina Flichel-Fawcett
2002-016788
Compensation in respect of RPPs
This is in response to your e-mail submission of October 10, 2002 and our subsequent telephone conversation (Flichel-Fawcett/Kohnen) in which you requested our views regarding whether benefits in respect of employee stock options are to be included in the computation of compensation in respect of a registered pension plan ("RPP").
The term "compensation", as it applies to an RPP, is defined in subsection 147.1(1) of the Income Tax Act (the "Act"). Pursuant to paragraph (a) of the definition, compensation includes amounts in respect of an individual's employment or office that are required (or would be required but for paragraph 81(1)(a) as it applies with respect to the Indian Act) by section 5 or 6 to be included in computing income for the year, except for amounts excluded by clauses (iii) and (iv) of the paragraph.
Paragraph 7(3)(a) of the Act ensures that an employee is deemed to have neither received nor enjoyed any benefit under or because of an agreement to sell or issue shares, except as provided by section 7 of the Act. Subject to subsections 7(1.1) and 7(8), subsection 7(1) of the Act determines when a stock option benefit is deemed to have been received and how the benefit is to be calculated.
Paragraph 6(1)(a) of the Act includes "benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment" in income. Accordingly, a benefit in respect of a stock option to which subsection 7(1) applies, would be required by section 6 of the Act to be included in income, and, therefore, would be included in the computation of compensation, as defined in subsection 147.1(1) of the Act, for purposes of an RPP.
We trust that the above comments will be of assistance to you. Please do not hesitate to contact Phillip Kohnen at 957-2093 should you require further information.
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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