4 June 1990 External T.I. 900945 F - Employee Share Ownership Plan Shares

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.

SUBJECT: Employee Share Ownership Plan Shares

This is to explain our position regarding the determination of the fair market value of shares partially financed by provincial tax credits where such shares are transferred to RRSPs or RRIFs immediately after purchase.

A typical example would be a corporation issuing a share to an investor for $10 and the investor receiving a provincial tax credit of $3 so that his net cost is $7. If the corporation winds up immediately it would have to repay the $3 credit to the provincial government. If the shares are immediately transferred to a RRSP or RRIF it is our position that, generally, the fair market value for such transfers would be $7.

The fair market value of the shares would be determined either by the liquidation value of the corporation's assets or by the amount an arm's length buyer would be willing to pay for the share.  Assuming the corporation has no other assets and it is dissolved it would have, at most, $7 to distribute to the shareholder after repaying the provincial tax credit. Also, if an arm's length purchaser can buy a share for a net price of $7 from the issuing corporation, he would not likely be willing to pay more than that to the original investor. Although the fair market value is always a question of fact, it would appear that in the absence of other evidence it would be $7 around the time the share is issued.

The Valuations Section, of the Specialized Audit Division, has previously taken the position that, for ease of administration, the $7 should be allowed as the fair market value providing the share is transferred to a RRSP or RRIF within 30 days of purchasing it.

We trust these comments will be of assistance.

for DirectorFinancial Industries DivisionRulings Directorate