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: Whether CCPC options or shares are still eligible for 7(1.1) & 110(1)(d) or (d.1) treatment
Position: Yes
Reasons: Wording of 7(1.4) and 7(1.5)
XXXXXXXXXX 991926
S. E. Thomson
Attention: XXXXXXXXXX
October 18, 1999
Dear XXXXXXXXXX:
Re: Stock Options and Canadian Controlled Private Corporation ("CCPC")
This is in reply to your letter of July 7, 1999 in which you ask for our views on a hypothetical situation where an employee of a CCCP exchanges options or shares pursuant to subsections 7(1.4) or 7(1.5) of the Income Tax Act (the "Act").
In your first scenario, the employee exchanges options in the CCPC for options in a non-resident corporation with which the CCPC does not deal at arm's length. As long as the original options met the requirements of subsection 7(1.1) of the Act at the time those options were granted, and the exchange meets the requirements of subsection 7(1.4), we agree that the employee will continue to be subject to the provisions of subsection 7(1.1) of the Act. However, the applicable deduction upon disposition of the non-resident shares would be subparagraph 110(1)(d) rather than paragraph 110(1)(d.1) of the Act, since subsection 7(1.4) does not apply for the purposes of paragraph 110(1)(d.1).
Your second scenario asks for our views in a situation where the employee exercises an option to acquire CCPC shares, then exchanges the shares for shares in a non-resident corporation with which the CCPC does not deal at arm's length. As long as the shares were subject to subsection 7(1.1) of the Act at the time of the exchange, and the exchange otherwise meets the requirements of subsection 7(1.5) of the Act, we agree that the employee will continue to be subject to the provisions of subsection 7(1.1) of the Act. In addition, the relevant deduction remains paragraph 110(1)(d.1) since subsection 7(1.5) applies for the purposes of paragraph 110(1)(d.1).
We trust that our comments have been helpful.
Yours truly,
P. Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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