11 June 1993 Income Tax Severed Letter 9309555 - Surrender of Units of Phantom Stock 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.

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.

                                                    5-930955
XXXXXXXXXX                                          G. Martineau
                                                    (613) 957-8953

Attention: XXXXXXXXXX

June 11, 1993

Dear Sir\Madam:

This is in reply to your letter of March 15, 1993 concerning the application of subparagraph 110(1)(d)(iii) of the Income Tax Act (the "Act").

You describe a situation where a stock option plan was issued in substitution for rights under a phantom stock plan. A corporation had a phantom stock plan for certain of its employees. The said employees could surrender their rights under the phantom stock plan where they were eligible for the stock option plan. The exercise price for a share under the stock option plan was equal to the the fair market value of the shares at the time the stock options were granted less the base value of each unit under the phantom stock plan at the said time.

It appears that your enquiry relates to completed transactions. Where a completed transaction is involved, the enquiry should be addressed to the relevant District Taxation Office. We offer, however, the following general comments.

In our view, the substitution of the phantom stock plan units for the stock options would be considered a disposition of property and the value of the units would be included in the employees' income to the extent that any amount was not included in the income in the previous years.

It is our view that the amount included in the employees' income would be considered as an amount paid by the employees to acquire the right to acquire the shares for the purposes of subsection 7(1) and subparagraph 110(1)(d)(iii) of the Act.

The above comments reflect an expression of opinion only and are not binding on the Department, as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.

Yours truly,

for Director Financial Industries Division Rulings Directorate