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: Section 7 of the Income Tax Act (the "Act")
This is in reply to your letter of August 23, 1993, in which you ask whether section 7 of the Act would apply where the employees of a partnership are granted stock options by a corporation which is one of the partners. You also ask whether it would make any difference if the other partners are corporations that do not deal at arm's length with each other or with the corporate partner offering the stock options.
In our view section 7 will not apply in the situation described because an employee of a partnership cannot be considered to be employed by a particular corporate partner within the meaning of that section.
Instead, an employee of a partnership who exercises an option granted by one of the partners will be required under paragraph 6(1)(a) of the Act to include in income for the year the share is acquired an amount equal to the difference between the fair market value of the share on the date of acquisition and the amount paid therefore by the employee. Any such amount included in income will be added in computing the cost of the share pursuant to subsection 52(1) of the Act.
Although the foregoing comments are not binding on the Department, we trust they are helpful.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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