18 June 1990 Administrative Letter 59786 F - Stock Options Granted to Non-residents

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.

Attention: 19(1)

June 18, 1990

Dear Sirs:

Re:  Stock Options Granted to Non-Residents

This is in reply to your letter of March 19, 1990, wherein you requested our opinion on the applicability of section 7 of the Income Tax Act in the following situation.

An individual is employed outside of Canada and is considered to be a non-resident for tax purposes.  The individual has received a stock option in respect of service outside of Canada in the foreign jurisdiction but has not yet exercised the option.  The individual will be transferring back to Canada and will be employed by the same employer.

Based upon the above, you have asked for our opinion on whether section 7 of the Act will be applicable on the exercise of the stock option if the option is exercised after the individual has taken up residence in Canada.  Your have also asked if we would provide our comments with respect to this issue in light of the decision of the Tax Court of Canada in Hewitt v. M.N.R. 89 DTC 451.

If the option is exercised after the individual becomes resident in Canada, paragraph 7(1)(a) of the Act will apply to bring the full amount of the benefit, if any, into the individual's income. The reason for this is because a resident of Canada is taxable on his world income.

There is no provision in the Act to permit a deduction for the amount of any benefit that may have accrued while the individual was a non-resident.

In the case of Hewitt v. M.N.R. 89 DTC 451, the Court held that the funds received by the taxpayer out of the employer's Service and Thrift Plan had vested in the employee while a non-resident. In order for the appellant to be subject to tax in Canada while a non-resident, he must have been employed in Canada, carried on business in Canada, or disposed of taxable Canadian property. The Court held that none of these conditions were present, thus the taxpayer "did nothing which would give rise to liability for income tax in Canada".

We trust our comments are of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch