31 October 1996 External T.I. 9634335 - RRSP OPTIONS

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:

Can an employee stock option be transferred to an RRSP?

Position:

Yes

Reasons:

4900(1)(e) allows an rrsp to hold option provided that the underlying property is a qualified investment.

									963433
XXXXXXXXXX							M.P. Sarazin

Attention: XXXXXXXXXX

October 31, 1996

Dear Sirs:

Re: Disposal of Employee Stock Option to RRSP

This is in reply to your letter dated October 1, 1996 which was addressed to the Calgary Tax Services Office and forwarded to us on October 16, 1996, wherein you requested our comments with respect to employees of XXXXXXXXXX selling, at fair market value, their options to acquire shares of XXXXXXXXXX parent corporation whose shares trade on the New York Stock Exchange to their registered retirement savings plans ("RRSP").

Comments

It appears that the interpretation you seek relates to proposed transactions to be undertaken by specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto issued on September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following comments.

Under the provisions of paragraph 4900(1)(e) of the Income Tax Regulations (the "Regulations"), a warrant or a right giving the owner thereof the right to acquire property will be a qualified investment if the underlying property that may be acquired is a qualified investment. Shares of a corporation listed on a prescribed stock exchange outside of Canada are qualified investments under paragraph (a) of the definition of "qualified investment" in subsection 146(1) of the Income Tax Act (the "Act") and paragraph (h) of the definition of "qualified investment" in section 204 of the Act. Section 3201 of the Regulations lists the particular stock exchanges outside of Canada that are prescribed for purposes of the section 204 of the Act.

Benefits derived by employees from stock options granted by their employers are included in employment income under the provisions of section 7 of the Act. Where an employee stock option is disposed of to a non-arm's length person, the provisions of paragraph 7(1)(c) of the Act would apply to include a benefit in the employee's income only when the non-arm's length person exercises the option. Consequently, there would not be any immediate income inclusion when an employee stock option is disposed of to a non-arm's length person. We note that any disposition to an RRSP should take place at fair market value otherwise the provisions of subsection 69(1) of the Act may apply.

Where an employee stock option is a qualified investment for an RRSP trust and it is disposed of by the employee to his or her RRSP or spousal RRSP, it is the Department's general position that the employee would not have any immediate income inclusion as a result of such disposition. However, the employee will have an income inclusion, as of the date that the RRSP exercises the option, equal to the amount that the fair market value of the shares acquired on the exercise date exceeds the exercise price paid by the RRSP for such shares. The employer would have to report the benefit on the employee's T4 as employment income under paragraph 7(1)(c) of the Act in the particular taxation year that the RRSP exercises the stock option.

In the case where the RRSP subsequently sells the option to an arm's length person, the employee is deemed to have received a benefit equal to the amount by which the sale proceeds exceeds the amount paid by the employee to acquire the option.

We trust the above comments will be of assistance to you.

Yours truly,

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