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.
October 2, 1997
Regina TSO Income Tax Rulings and
Henry Marcotte Interpretations Directorate
Assistant Director of Audit T. Harris
957-2114
Attention: Len Serdachny
Large File Case Manager
971579
Interpretation Bulletin IT-113R4
- Stock Options Exercised by Non-Residents
This is in response to your memorandum of May 26, 1997 wherein you requested clarification of the comments set out in paragraph 22 of Interpretation Bulletin IT-113R4. In your correspondence of June 11 and August 5, 1997 you provided additional information relating to this issue.
You have described a situation where the taxpayer is granted an option to acquire shares of Canco, a company which is a taxable Canadian corporation and a public corporation, at a time when the taxpayer is a resident of Canada and is employed by Canco. However, the terms of the stock option contain certain restrictions including a requirement that the taxpayer be employed by Canco or one of its subsidiaries during the vesting period. Prior to the end of the vesting period, the taxpayer moves to the United States to work for one of Canco's subsidiaries. The stock options are exercised while the taxpayer is a resident of the United States. However, following his move to the United States, the taxpayer has continued to perform duties in Canada for Canco. In this regard, he spends approximately two months per year performing duties in Canada.
You have advised that you have been unable to obtain any document which sets out the general terms and conditions of the company's stock option plan. Instead options are detailed in the director's minutes once or twice per year and appear to be granted on an ad hoc basis, except that the majority are issued to senior management. Additional options are granted to eligible employees in subsequent years.
You have indicated that, in your view, paragraph 22 of IT-113R4 can be interpreted to mean that the stock option benefit is either fully taxable in Canada or only partially taxable in Canada. You have therefore requested clarification on this issue. You believe that the stock option was earned for services performed prior to the granting of the option.
The comments in paragraph 22 of IT-113R4 are directed at the situation where the employment for which the stock option was granted was performed solely in Canada. These comments, which indicate that the full amount of the benefit is taxable in Canada, are consistent with the Department's position that the income arising from the exercise of a stock option by a non-resident is taxable in Canada pursuant to subsection 2(3) and subparagraph 115(1)(a)(i) of the Income Tax Act to the extent that the income arises from shares whose right of acquisition relates to duties of employment performed in Canada.
Unfortunately, based on the information provided to us, we are unable to provide any definitive comments with respect to your view that the stock option was granted for services rendered prior to the granting of the option. In this regard, the fact that additional options have been granted to the employee on a regular basis may support your view that the options are granted in respect of past services; however, the fact that the exercise price for the shares covered by the option is equal to the "last sale price of board lots of the common shares of the Company on the Toronto Stock Exchange on the last business day on which there was a trade of board lots prior to the date of this Agreement" and that the stock options can only be exercised once they have vested and their vesting is dependent on the taxpayer being employed by Canco or one of its subsidiaries throughout the vesting period are factors which might support the taxpayer's position that the option is granted in respect of employment services to be rendered subsequent to the grant of the option, i.e. during the vesting period.
We trust that our comments will be of assistance.
for Director
Reorganization and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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