17 February 1994 External T.I. 9401375 - HAA4735-1 PAYMENTS IN LIEU OF SHARES, STOCK OPTION 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.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

DOCUMENT TYPE:

Opinion

Principal Issues:

-Request for confirmation of tax effects of a proposed transaction
-How will a revokable offer to pay cash in lieu of shares under an employee stock option plan be taxed

Position TAKEN:

only general opinion oncurrent position provided. No opinion given on a revokable plan as insufficient facts provided

Reasons FOR POSITION TAKEN:

routine procedure and opinions

LEGAL:

FINANCE OPINION:

JURISPRUDENCE:

RCT PUBLICATIONS:

IT13R3

HAA NUMBER:4735-1

XXXXXXXXXX 5-940137

Attention: XXXXXXXXXX

February 17, 1994

Dear Sirs:

Re: Payments in lieu of Shares Under Employee Stock Option Plans

This is in reply to your letter of January 19, 1994, regarding a proposed payment of cash in lieu of shares that may otherwise be acquired under an employees stock option plan.

Since the subject of your enquiry appears to relate to an actual situation we are unable to provide you with any specific comments at this time. Confirmations of the tax implications in particular situations may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in the Department's Information Circular 70-6R2. On the other hand, if the transactions are already completed, enquiries with respect to them must be submitted to the relevant District Taxation Office for the Department's comments but only when they are submitted with all particulars including the identifications of the parties involved.

While we are unable to address your specific situation, we can offer you the following general statement concerning the payment of cash in lieu of shares under employee stock option plans.

Where an employee may elect to receive cash instead of shares under an employees stock option plan any benefit would be included in the employee's income under subsection 7(1) of the Act. On the other hand if the decision to pay cash rather than issue shares remains with the employer, and cash is actually paid, it is our opinion that any benefit received would be included in income by virtue of subsection 5(1) or paragraph 6(1)(a) of the Act. Subsection 110(1)(d) of the Act would not apply in this case.

Where an employer makes a cash payment to discharge obligations under an employee stock option agreement, paragraph 7(3)(b) of the Income Tax Act (the "Act") will not apply to deny a deduction in computing the employer's income for a year.

The above comments are based on our understanding of the law as it applies in general and may or may not apply to the circumstances of a particular case. However, they do not form an advance income tax ruling and they are not binding on the Department.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate