9 February 1990 Ruling 59373 F - Employee Stock Option Plan

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.

February 9, 1990

Dear Sirs:

Re:  Employee Stock Option Plan Paragraphs 7(1)(b) and 110(1)(d) of the Income Tax Act (the "Act")

This is in reply to your letter of January 19, 1990 wherein you have requested our opinion in the following opinion in the following situation.

24(1)

Please note that if your enquiry is in respect of a completed transaction , your local district taxation office would be in the best position to obtain all facts of the situation and determine applicable tax consequences.  We are reluctant to offer our opinion without knowing the facts of the situation or having the necessary documentation available for review. However, we do offer the following general comments:

It is our opinion that an amendment to an employee stock option plan addressing what will happen in the event of a takeover or reorganization would not in and of itself be considered so fundamental a change to the agreement as to constitute a new agreement.  Although the issue is not clear from doubt, it would seem that an amendment extending the time period that an option may be exercised in the event of a takeover or corporate reorganization would not constitute a rescission of the original agreement.  Therefore, there would be no section 7 income inclusion at the time of such an amendment and a paragraph 110(1)(d) deduction previously available would continue to be so available.  If however, the intent and effect of the amendment is to make available to the employees shares that are fundamentally different than those contemplated by the original agreement, then it could be argued that a fundamental or cornerstone item of the Plan has significantly been altered (e.g. the type of share being offered to participating employees may now include shares of a Parent Company) and as a result could be considered to render the old agreement extinguished.

The foregoing represents our opinion based on the presentation of very limited facts only. This is not a ruling and is not binding upon the Department.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch