18 November 2003 External T.I. 2003-0014695 - GRANT OF STOCK OPTIONS TO CHARITY

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:

Is a charity permitted to issue a donation receipt when it is issued a stock option?

Position: No.

Reasons:

A donation receipt may only be issued in respect of a gift. To constitute a gift, there must be a transfer of property. A granting corporation does not transfer property to a charity when it issues a stock option.

XXXXXXXXXX                                      2003-001469

November 18, 2003

Dear XXXXXXXXXX:

Re: Donation of Stock Options to Charities by Public Corporations

This is in reply to your letter of August 23, 2002 to the Charities Directorate of the Canada Customs and Revenue Agency which was referred to us on April 23, 2003. In your letter, you advise that the Toronto Stock Exchange (TSX) has recently amended its rules to permit corporations that are listed on the exchange to grant options to registered charities and you ask whether a charity can issue a donation receipt if it is issued such a stock option.

In this respect, you have explained that the TSX's criteria for charitable options include the following:

? the options must expire no later than 10 years from the date of the grant or 90 days from the time that the charity ceases to be registered
? the exercise price for the options must not be less than the 10-day weight average trading price of the shares on the TSX immediately preceding the issuance of the options
? the options must be non-assignable, and
? the exercise price must be paid in cash.

Written confirmation of the tax implications inherent in particular transactions is given by this Department only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

In general, a "gift" for purposes of the Income Tax Act requires a voluntary transfer of the donor's property. The grant of a stock option would not appear to result in a reduction in the granting corporation's assets. This, in our view, would preclude the grant from being viewed as a transfer of property from the corporation to the charity. We note in this respect that there is jurisprudence confirming that the issuance of a share does not result in a transfer of property by a corporation for the same reason. For e.g., see the Tax Court of Canada decision in Algoa Trust 93 DTC 404 (TCC) aff'd without reasons Feb. 4, 1998, Doc A-201-93 (Fed CA).

As there is no transfer of property, a corporation is not impoverished by granting such an option. Actual impoverishment of a donor is often referred to as a key component of a gift. For e.g., see Boiselle 89 DTC 279 (TCC):

There are two aspects to any gift : a material aspect involving the actual impoverishment of the donor on the one hand and the enrichment of the donee on the other, and the aspect of intent which is also known as animus donandi.

For these reasons we are of the view that a charity should not issue a receipt in respect of such a grant.

Yours truly,

F. Lee Workman
Manager
Financial Institutions
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

cc. Susan Mott

Manager
Policy and Communications Division
Charities Directorate
Policy and Legislation Branch