14 October 1999 External T.I. 9916605 - PART XIII, 7(1) BENEFIT REIMBURSEMENT

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: Will an amount that is not deductible under paragraph 7(3)(b) of the Act paid by a Canadian employer to its U.S. parent corporation in respect of the economic benefit provided to the Canadian employer's employees under the U.S. Parent's stock option plan be treated as a payment that is subject to Part XIII taxes under the Act?

Position: No.

Reasons: The amount will not be considered a payment that will be subjected to Part XIII because it does not represent one of the types of payments described in Part XIII (in particular paragraph 214(3) (a)) of the Act.

XXXXXXXXXX						991660
M. P. Sarazin
Attention:	XXXXXXXXXX 

October 14, 1999

Dear Sirs:

Re: Reimbursement of Stock Option Plan Benefits to Parent Corporation

This is in reply to your letter dated June 8, 1999, wherein you requested confirmation of the tax treatment of proposed payments by a Canadian employer to its U.S. parent corporation for the value of the benefits provided to the employees of the Canadian employer under the U.S. parent corporation's stock option plan.

You are aware of the Department's general position that the payments by the Canadian employer to reimburse its U.S. parent corporation for the value of the benefits provided to its employees under the U.S. parent corporation's stock option plan are not deductible pursuant to paragraph 7(3)(b) of the Income Tax Act (the "Act"). However, you are uncertain as to whether the Department would take the position that such payments would constitute a shareholder benefit and subject the payments to withholding taxes under Part XIII of the Act.

Comments

It appears that the opinion you seek relates to specific proposed transactions and, therefore, we bring to your attention Information Circular 7O-6R3 dated December 30, 1996, issued by Revenue Canada. 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. However, we can provide you with the following general comments.

The determination of whether a specific payment made by a Canadian employer to its U.S. parent corporation will be subjected to taxes under Part XIII of the Act can only be determined after a review of all of the relevant facts pertaining to the specific payments. However, we would not expect that a reimbursement by a Canadian employer to its U.S. parent corporation for the value of benefits provided to the Canadian employer's employees under a stock option plan would constitute a type of payment that would be subjected to taxes under Part XIII of the Act.

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

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate