6 December 1995 External T.I. 9527035 - TAXATION OF BENEFIT OF EMPLOYEE SHARE OFFERING

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 6, 7 or 15 applies to tax benefit received by employee as a result of share offering by non-resident corporate parent.

Position:

Depends on capacity of individual who receives benefit; confirmed that if employee, section 7 applied in preference to 6.

Reasons:

Wording of 15(1), (2) and proposed 15(2) and (2.4) and 7(5); 7(3)(a) and generalibus specialia derogant .

XXXXXXXXXX							952703

Attention: XXXXXXXXXX

December 6, 1995

Dear Sirs:

Re: Employee Share Offering

This is in reply to your letter of October 11, 1995, in which you ask us for our opinion concerning income tax consequences attendant upon an offer of shares. In particular you ask whether any of sections 7, 15 or 6 of the Income Tax Act (the "Act") will apply to tax benefits that employees of a Canadian-resident subsidiary might enjoy as a result of their acquiring shares of the non-resident parent corporation.

We are not in a position to confirm the tax consequences to such employees on a general enquiry basis. Whether section 7 or 15 applies depends on the capacity in which the employee obtains the benefit. See in particular subsection 7(5), subparagraph 15(2)(a)(iii), and proposed subsections 15(2) and (2.4) of the Act.

If a benefit is received by an individual qua employee, paragraph 7(3)(a) requires that it be taxed under section 7 and not under any other provision in Part 1 of the Act. Note also the comments in Minister of National Revenue v. Chrysler Canada Ltd. et al. 92 DTC 6346 respecting the principle of generalibus specialia derogant, and the application of section 7 in preference to section 6 in the event of a conflict.

With respect to the appropriate discount to be applied to reduce the value of a share in the circumstances discussed in paragraph 6 of Interpretation Bulletin IT-113R3, we suggest you contact the regional valuations section concerning the factors the Department might apply. (See Information Circular 72-25R4 for a list of the regional offices and the tax services offices which they serve.)

We would, of course, be pleased to consider your request in the context of an advance ruling submission.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch