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:
a)Does 7(1.4) apply where the value of new options does not exceed the value of the old.
b) Acceptance of a valuation procedure.
c) Timing of the non-arm's relationship in 7(1.4).
Position:
a)This is one of the criteria.
b) Referred to TSO valuations section.
c) Immediately before and after transaction per 7(1.4).
Reasons:
a) & c) provided for in the Act;
b)is the responsibility of the TSO.
972284
XXXXXXXXXX Fouad DaaboulAttention: XXXXXXXXXX
November 24, 1997
Dear Sirs:
Re: Follow-up to Stock Option Technical Interpretation
This is in reply to your letter of August 21, 1997, wherein you requested a confirmation of the discussions of August 14, 1997 (XXXXXXXXXX/Spice) in respect of your technical interpretation request of June 11, 1997 and our response of July 24, 1997.
1.No section 7(1)(b) benefit would arise if the exchanged options received were equal to or less than the value of the options given up.
Generally paragraph 7(1)(b) of the Income Tax Act (the "Act") applies to the disposition of an employee stock option to an arm's length person; however, if the conditions in subsection 7(1.4) of the Act are met, the employee is deemed not to have disposed of the option. One of the conditions in subsection 7(1.4) is basically that the value of the new options cannot exceed the value of the old options.
2.The use of a ten day closing price averaging, prior to the spinoff, which is acceptable for IRS purposes re: an approximation of fair market value would be accepted by Revenue Canada.
As indicated in our letter of July 24, 1997, further valuation questions may be directed to the Toronto Centre Tax Services Office.
3.The fact that communication of the new option package might not be complete for several weeks after the spinoff, does not adversely affect the rollover provisions of section 7.
The determination of arm's length and valuation is a question of fact. For the purposes of subsection 7(1.4), the relevant time for these determinations is immediately before and after the exchange of options as indicated therein.
Our comments are not binding on the Department we trust they will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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