12 January 1995 External T.I. 9431595 - STOCK OPTION

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 7(1.1) and 7(1)(a) apply where an individual 	transfers shares of a CCPC to his wholly owned 	corporation with which the CCPC deals at arm's length 	immediately after the transfer?

Position TAKEN:

YES

Reasons FOR POSITION TAKEN:

	There is a disposition for the purposes of 7(1.1). 	Subsection 7(1.5) does not apply.

			5-943159
XXXXXXXXXX		Robert Gagnon

Attention: XXXXXXXXXX

January 12, 1995

Dear Sirs:

Re: Section 7 of the Act

This is in reply to your letter of November 30, 1994 wherein you requested a technical interpretation concerning section 7 of the Income Tax Act (the "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 each proposed transaction. 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.

There is a disposition of shares for the purposes of paragraph 7(1)(a) and subsection 7(1.1) of the Act where an individual transfers shares (acquired under circumstances outlined in subsection 7(1.1)) of a Canadian-controlled private corporation ("CCPC") to his wholly owned corporation with which the CCPC deals at arm's length immediately after the transfer, even though an election is made under subsection 85(1) of the Act. Accordingly, such transfer may result in a benefit when the shares are transferred.

Pursuant to paragraph 7(1)(a) and subsection 7(1.1) of the Act, the amount of the taxable benefit is equal to the amount by which the value of the shares of a corporation at the time the employee acquired them exceeds the amount paid or to be paid to the corporation by the employee for the shares and any amount paid by the employee to acquire the rights to acquire the shares.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch