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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Proposed paragraph 128.1(4)(b) of the Income Tax Act (the "Act")
This is in reply to your letter of August 12, 1993 wherein you indicated that you were concerned with the following hypothetical situation as it pertains to the treatment of stock options when an individual taxpayer ceases to be a resident of Canada.
The taxpayer is an individual who is a resident of Canada and has been a resident of Canada during his lifetime. The corporate employer of the individual is a public company which has agreed to issue shares of its capital stock to the individual by virtue of his employment. The individual has and will have, on the exercise of his option, only a nominal shareholding in his employer with whom he deals at arm's length. The individual ceases to be a resident of Canada at a particular time, and at that time, the stock option, which was issued to him for no consideration, has a fair market value (FMV) in excess of nil.
It was your view, in accordance with the proposed section 128.1 of the Act, as contained in the Draft Legislation released in December, 1992, that the individual would have a deemed disposition of the stock option on ceasing to be a resident of Canada since it does not fall within one of the exceptions set out in subparagraphs 128.1(4)(b)(i) to (v) of the Act.
However, recent amendments, as contained in the Draft Legislation released in August 1993, have been made to section 128.1 of the Act and one of those changes included the addition of an exception to the general deemed disposition rule, as set out in subparagraph 128.1(4)(b)(vi) of the Act, which reads as follows:
"a right to acquire shares of the capital stock of a corporation where section 7 would apply if the taxpayer disposed of the right to a person with whom the taxpayer was dealing at arm's length,"
The Explanatory Notes to the Draft Legislation relating to the proposed change states:
"More specifically, the property not subject to the paragraph 128.1(b) deemed dispositon where an individual becomes a non- resident includes...employee stock options that are subject to section 7 of the Act."
Since the revised Draft Legislation excluded the right to acquire shares of the capital stock of a corporation from the deemed dispositon rules in section 128.1 of the Act, the problem outlined in your letter should not now exist under this Legislation.
We trust the above is adequate for your purposes.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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