12 July 1996 External T.I. 9623005 - CASH BONUS AND 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:

Will a cash bonus be tainted if its linked to a stock option but the employee is free to use it as he or she wishes

Position:

Based on 1990 statement but extended to clarify employee must not be under obligation to exercise the option either

Reasons:

Comment being quoted was specific to a particular case. A more restrictive general reply was required.

XXXXXXXXXX							5-962300

Attention: XXXXXXXXXX

July 12, 1996

Dear Sirs:

Re: Subsection 7(3) of the Income Tax Act (the "Act")

This is in reply to your letter of June 26 1996, in which you asked us to confirm our position on the application of subsection 7(3) of the Act where a bonus is paid to an employee at a time when the employee is also provided an option to acquire shares from the employer.

We confirm that in such circumstances, subsection 7(3) will not apply to deny a deduction to an employer in respect of the payment of a cash bonus to an employee where the employee has an unrestricted right to use the payment in any manner the employee chooses and is under no obligation to exercise the stock option.

We trust this clarifies our position on this matter.

Yours truly,

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