Ss. 143.3 and 143.4 are as badly drafted as they look

The definition of a "contingent amount" in s. 143.4 turns on the definition of a "right to reduce," which refers to a right (including a contingent right) to reduce or eliminate the amount which it is reasonable to conclude "will become exercisable."   Discussions with Finance indicate that automatic adjustments are intended to be captured by this (i.e., not just adjustments exercised at the taxpayer's option).

It is suggested that the amount of the reduction in expenditure occurring under s. 143.4(2) is only the amount of the expenditure which potentially may be reduced rather than all of the expenditure.

It is unclear whether s. 143.4(2) applies only to unpaid amounts or whether it extends to refunds or reimbursement rights.

S. 143.4(3) permits the recognition of contingent amounts as they are paid in cash. This seems to suggest that there will be no reduction for a potential refund of a cash expenditure.  However, if the right to reduce an expenditure arises in a subsequent year so that s. 143.4(4) applies, thereby generating a s. 12(1)(x) income inclusion in the subsequent year, there is no deduction under s. 143.4 if the amount in question is in fact ultimately paid.

Given that s. 143.3(3) generally denies any recognition of any cost of property acquired in consideration for issuing an option, and given that this rule may not apply to the issuance of options for cash, consideration should be given to issuing options for cash and applying that cash to purchase property that otherwise might have been acquired in consideration for the option.

Neal Armstrong.  Summaries of Chris Falk, Stefanie Morand and Brian O'Neill, "Is there Always Certainty Regarding Tax Basis? – Limitations on Expenditures Pursuant to Sections 143.3 and 143.4," draft version of paper for CTF 2014 Conference Report under s. 143.4(1) – right to reduce, s. 143.4(2), s. 143.4(4), s. 143.3(2), s. 143.3(3)(a) and s. 143.3(5)(b).