8 February 2005 Interpretation Case No. 52141

Respecting the issuance of stock options to an independent contractor as additional compensation for services rendered, CRA stated:

[W]here a person receives a stock option enabling the person to purchase shares for an amount less than the fair market value of the shares as part of the compensation paid to him or her by the corporation for taxable services provided (or to be provided) to the corporation, the CRA will consider the difference between the purchase price of the shares under the option and the fair market value of the shares at the time of the granting of the option to be additional consideration for the contractor's services to the corporation.

Respecting the issuance of stock options to an independent contractor as additional compensation for services rendered, CRA indicated that the in-the-money value of the options at the time of grant would represent the amount of such additional consideration for the services, and then stated:

With respect to the exercise of the stock options (share purchase) and subsequent sale of the shares, it is our view that these are each supplies of a "financial service" as defined at paragraph 123(1)(d) of the ETA. Your client's purchase of shares (exercise of the stock option) and sale of shares are both exempt supplies of "financial services" ... .

Respecting the issuance of stock options to an independent contractor as additional compensation for services rendered, CRA indicated that the in-the-money value of the options at the time of grant would represent the amount of such additional consideration for the services.