21 February 1995 External T.I. 9431215 - EMPLOYEE STOCK PURCHASE 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.

Principal Issues:

Whether section 7 applies to a share purchase plan?

Position TAKEN:
	Position of the Department is that section 7 applies if 	shares are purchased from treasury and does not apply 	if shares are purchased from the open market.

Reasons FOR POSITION TAKEN:

			5-943121
XXXXXXXXXX 	R. Gagnon

Attention: XXXXXXXXXX

February 21, 1995

Dear Sirs:

Re: Employee Stock Purchase Plan

This is in reply to your letter of November 11, 1994 wherein you requested a technical interpretation concerning section 7 of the Income Tax Act ("Act").

The situation outlined in your letter appears to involve actual proposed transactions with identifiable taxpayers. As indicated in Information Circular 70-6R2, we do not express opinions on specified proposed transactions other than as a reply to an advance income tax ruling. Where a taxpayer submits an advance ruling request, the request must include among other things a complete description of all the relevant facts and pertinent agreements. While we are unable to comment on the income tax consequences attendant on the specific facts described in your letter, the following general comments may be of assistance to you.

Where the terms of a stock purchase plan provide that shares of the employer are purchased from treasury and from the open market, it is the Department's view that the provisions of section 7 will apply to the extent that shares are purchased from treasury. Where section 7 does not apply because shares are purchased from the open market and the employer pays part of the amount paid for the shares purchased by an employee, the employee is taxable on the amount of the benefit under subsection 5(1) or paragraph 6(1)(a) of the Act.

The date of acquisition of shares is a question of fact and law. Generally, acquisition will be considered to have taken place when title passes or, if title remains with the vendor as security for the unpaid balance, when all the incidents of title pass. The date of acquisition depends on the terms of the arrangement into which the parties enter. The Department does not confirm the non-tax results of an arrangement in the context of an opinion letter.

Where subsection 7(1) of the Act is applicable to shares acquired, it is the Department's position that the amount of a benefit must be determined by reference to the actual fair market value of the shares at the time they were acquired.

In our view, where in a stock purchase plan, there is a stock trading restriction for a very limited while, we doubt that a discount would be applicable to determine the value of the acquired shares. However, where a share is subject to a trading restriction, the proper discount, if any, depends upon the particular facts of a case. You may wish to consult the valuation unit at the Vancouver District Office.

The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy & Legislation Branch