30 September 1996 External T.I. 9632445 - PARAGRAPH 9 OF IT-113R4

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.

G. Moore
XXXXXXXXXX  							952-1506
									5-963244

September 30, 1996

Dear XXXXXXXXXX:

Re: Interpretation Bulletin IT-113R4
Benefits to Employees - Stock Options

I am writing in response to your letter of September 18, 1996, concerning paragraph 9 of the above interpretation bulletin.

Paragraph 9 indicates that if an employee acquires shares pursuant to a stock option agreement, the provisions of which prohibit transfer of the shares for a period of time, the employee is considered to have "acquired" the shares within the meaning of section 7. However, the value of the shares is considered to be the fair market value of identical shares at the time of acquisition that have no trading restriction less an appropriate discount in respect of the restriction.

In your letter, you have asked for additional information to clarify what constitutes an appropriate discount for shares that are subject to resale conditions for a period of 8 years. The proper discount depends wholly upon the particular shares and a number of factors such as the trading record of the shares. Accordingly, there is no standard discount rate. I have enclosed a copy of Information Circular 89-3, Policy Statement on Business Equity Valuations, which contains information on options. If you wish to discuss this matter further, you may contact Mr. Murray Game, Chief, Valuations Section, Toronto Tax Services Office, by writing to 36 Adelaide Street East, Toronto, Ontario M5C 1J7 or by calling him at 973-9211.

I trust my reply will be of assistance to you.

Yours truly,

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c. Mr. Murray Game

Chief, Valuations Section
Toronto Tax Services Office