22 February 1989 Income Tax Severed Letter 5-7495 -  

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.

W.C. Harding (613) 957-3499

February 22, 1989

Dear Sirs:

This is in reply to your letter of January 27, 1989 requesting confirmation of your views concerning an employee stock option which is transferred to the employee's spouse on his death.

We will comment on your opinions as to the tax implications presented in your letter.

1. We confirm that no amount is included in the final tax return of the deceased employee where the unexercised stock option passes to the deceased's spouse because the option is not deemed by subsection 70(5) of the Act to be disposed of by the deceased. We further confirm that the stock option is not a "right or thing" within the meaning of subsection 70(2) of the Act.

2. We agree that by virtue of paragraph 69(1)(c) of the Act, the spouse will be deemed to have acquired the option at its fair market value at the date of the employee's death.

3. We confirm that should the spouse exercise the option then paragraph 49(3)(a) of the Act will apply to include the fair market value of the option in computing the adjusted cost base of the shares so acquired.

4. We also confirm that when the spouse acquires or sells the shares, section 7 of the Act will have no application.

we trust these comments will be of assistance to you.

Yours truly,

Wayne Douglas

for Director Financial Industries Division Rulings Directorate