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:
Employee stock option at death of the employee where option can be exercised by estate
Position TAKEN:
7(1)(e) applicable for the employee and 69(1)(c) for the estate
Reasons FOR POSITION TAKEN:
Routine
5-950432
XXXXXXXXXX G. Martineau
Attention: XXXXXXXXXX
March 30, 1995
Dear Sirs:
Re: Stock Options
This is in reply to your facsimile of February 14, 1995 regarding the fiscal implications of stock options held by an employee at the time of his death where the estate could exercise them.
Paragraph 7(1)(e) of the Income Tax Act (the "Act") applies to an employee who holds options under an employee stock option plan at the date of death. A benefit in the year in which he dies equal to the difference between the fair market value of the option immediately before the employee's death and the amount paid by the employee to acquire the option will be included in the employee's income under that paragraph.
Where an estate acquires property by way of bequest or inheritance, it is deemed to acquire the property at fair market value at the time it so acquires it pursuant to paragraph 69(1)(c) of the Act. Provided that the shares acquired upon the exercise of the option are capital property to the estate, subparagraph 49(3)(b)(ii) of the Act will include the adjusted cost base of its option to the cost of the shares.
If the option expires, the estate is deemed by subparagraph 54(b)(iv) of the Act to have disposed of the option. A capital loss may result to the extent of the adjusted cost base of the option at the time of expiry.
We trust that the above comments are of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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