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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
1992 Canadian Tax Foundation Conference
Author: Mary Pat Baldwin November 25, 1992
Employee Stock Option Plans
Question 46
One of the requirements under paragraph 110(1)(d) of the Income Tax Act for a deduction in respect of a taxable benefit deemed to be received under section 7 of the Income Tax Act is that the amount payable by the taxpayer to acquire the share under the agreement is not less than the fair market value of the share at the time the agreement was made. In the case where a Canadian employee participates in the stock option plan of a foreign corporation, any options granted are usually denominated in the relevant foreign currency. For example, a U.S. corporation with subsidiaries in a number of other jurisdictions might operate only one stock option plan which would be available to the employees in these other jurisdictions. Typically, the option price would be set in U.S. dollars at the fair market value (e.g., the trading price on the New York Stock Exchange) at the date the option is granted. Would the payment by a Canadian employee of that option price in U.S. dollars at the date of exercise of the option satisfy this requirement in paragraph 110(1)(d), regardless of the relative movement of the Canadian dollar against the U.S. dollar in the intervening period?
ANSWER 46
It is the Department's position that when a Canadian taxpayer participates in a stock option plan in which the options granted are denominated in a foreign currency, the amount payable and the fair market value referred to in subparagraph 110(1)(d)(iii) of the Income Tax Act (the "Act") are to be established in Canadian dollars. The amount payable is to be determined at the time the stock options are exercised and not at the time they are granted.
Therefore, in the above example a Canadian taxpayer who acquires shares of a U.S. corporation under an employee stock option plan will be denied a deduction under paragraph 110(1)(d) of the Act eventhough the conditions of subparagraph 110(1)(d)(iii) of the Act are not met solely due to an increase in the value of the Canadian dollar relative to the U.S. dollar between the time the option is granted and the time it is exercised.
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