12 April 1995 External T.I. 9504285 - AGREEMENT TO ISSUE SHARES

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 series of 	transactions?

Position TAKEN:

Question of fact.

Reasons FOR POSITION TAKEN:

	Subsection 7(5) provides that section 7 does not 	apply if benefit is not received in respect of 	employment. Whether an individual receives a 	benefit qua employee is a question of fact. 

		5-950428
XXXXXXXXXX	R. Gagnon

Attention: XXXXXXXXXX

April 12, 1995

Dear Sirs:

Re: Section 7 of the Income Tax Act (the "Act")

This is in reply to your letter of January 24, 1995 wherein you requested a technical interpretation concerning section 7 of 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 pertinent agreements. While we are unable to comment on the income tax consequences attendant on the specific facts described in your letter, which may involve the application of sections of the Income Tax Act ("Act") other than section 7, the following general comments may be of assistance to you.

Section 7 of the Act does not apply solely to shares issued by a corporation to its employees under a stock option agreement. Subsection 7(1) (and subsection 7(1.1) of the Act where the corporation is a Canadian-controlled private corporation) is applicable where a corporation enters into an agreement with an employee under which the corporation agrees to issue shares at a specific time for an amount less than the value of the shares and the employee agrees to purchase the said shares.

However, subsection 7(5) of the Act specifically provides that section 7 does not apply if the benefit conferred by the agreement to issue shares is not received in respect of, in the course of, or by virtue of employment. Section 7 does not apply where a benefit is received in one's capacity as a shareholder. Whether an individual receives a benefit qua employee is a question of fact which can only be determined after a review of all the relevant facts and documentation.

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
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch