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:
Does 7(1.1) defer taxation of benefit if option transferred to an RRSP. Does 110(1)(d.1) apply
Position:
No, they can not apply.
Reasons:
Both provisions require an assessment under 7(1)(a). The income is not assessed under 7(1)(a) if it is transferred to an RRSP and the RRSP exercises the option. 110(1)(d) may still apply.
XXXXXXXXXX 5-963321
Attention: XXXXXXXXXX
October 21, 1996
Dear Sirs:
Re: Stock Options Held in RRSPs
This is in reply to your letter of September 27, 1996, concerning the application of subsection 7(1.1) and paragraph 110(1)(d.1) of the Income Tax Act (the "Act") should an employee transfer an option which is subject to the provisions of section 7 of the Act (an "employee stock option"), to an RRSP.
Where an employee stock option is granted in respect of a share of a Canadian-controlled private corporation, subsection 7(1.1) of the Act applies to defer recognition by the employee of any benefit under paragraph 7(1)(a) of the Act, until the taxation year in which the share is disposed of by the employee. On the other hand, where an employee stock option is transferred by the employee to a non-arm's length person such as an RRSP under which the employee is the annuitant, recognition of any benefit under section 7 of the Act is not made in accordance with paragraph 7(1)(a) of the Act but under 7(1)(c) if the option is exercised by the RRSP. Accordingly, subsection 7(1.1) of the Act can not apply to defer taxation of the amount.
Similarly, paragraph 110(1)(d.1) of the Act can only apply in circumstances where the benefit to the employee arises under paragraph 7(1)(a) of the Act. However, paragraph 110(1)(d) may apply in such circumstances if the provisions of that paragraph are met.
We apologize for any misunderstandings that may have arisen from your previous conversations with our office.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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