24 April 2003 Ruling 2003-0009843 - RPP PENSIONABLE EARNINGS STOCK OPTION

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 employee stock option benefits be included as pensionable earnings for a registered pension plan?

Position: Yes

Reasons: "Compensation" in subsection 147.1(1) includes amounts in respect of office or employment that are required by section 5 or 6 to be included in income. Benefits calculated under s.7 are included in income pursuant to 6(1)(a) of the Act.

XXXXXXXXXX 2003-000984
Renée Shields
(613) 948-5273
April 24, 2003

Dear XXXXXXXXXX:

Re: Stock Option Benefit as Pensionable Earnings

This is in response to your letter of March 21, 2003 requesting an advance income tax ruling regarding the amendment of an existing registered pension plan ("RPP") to include employee stock option benefits as pensionable earnings. As discussed, it is more appropriate that the Registered Plans Directorate ("RPD") make the determination of whether a particular amendment to an existing RPP would be acceptable under the registration rules in the Income Tax Act (the "Act"). You have advised us that you will be forwarding your request to RPD. Consequently, you have withdrawn your request for an advance income tax ruling. You have requested our general views as to whether stock option benefits would qualify as "compensation" as defined in subsection 147.1(1) of the Act.

Comments

The term "compensation", as it applies to an RPP, is defined in subsection 147.1(1) of 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 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