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.
Principal Issues: Taxation of employment benefits derived from the exercise of employee stock options.
Position: The letter provides a brief explanation of the existing legislation.
Reasons: CRA must apply the law as written. The Department of Finance is responsible for the implementation and amendment of tax policy. Both CRA and the Department of Finance are aware of the issues raised by the correspondent.
Signed on July 29, 2005
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable John McCallum, Minister of National Revenue, has asked me to reply to your email of June 16, 2005, regarding the taxation of employment benefits derived from employee stock purchase plans.
Under the Income Tax Act, a benefit received by an employee from his or her employer is generally subject to income tax. If an agreement between an employee and an employer allows the employee to obtain shares of the employer for less than their fair market value, the difference between the fair market value of the shares and the amount paid to purchase the shares constitutes a taxable benefit to the employee. Once the employee acquires the shares and chooses to hold the shares as an investor, the benefit is generally recognized and taxed at that time, and any subsequent gains or losses he or she experiences concerning those shares are treated in the same manner as any other investor in the stock market.
The Canada Revenue Agency is responsible for administering and enforcing the Act and must apply the legislation as it is written. The Department of Finance is responsible for implementing and amending tax policy. The Honourable Ralph E. Goodale, Minister of Finance, is aware of this issue and the concerns you raise in your correspondence.
Thank you for writing on this important matter.
Yours sincerely,
Brian McCauley
Assistant Commissioner
Policy and Planning Branch
c.c.: Minister's Office
Political Assistant
W. Harding
957-9769
2005-013797
July 22, 2005
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