5 June 2002 External T.I. 2002-0132805 - CHANGE IN STOCK OPTION TERM EXPIRY

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Does the extension of the expiry term of a stock option agreement result in a disposition of the old stock option?

Position:

Likely no.

Reasons:

The extension of the expiry date of a stock option does not significantly vary the rights, liabilities or legal position of the parties as ascertained by the original stock option agreement.

		2002-013280
XXXXXXXXXX 	Karen Power, CA
(613) 957-8953
June 5, 2002

Dear XXXXXXXXXX:

Re: Change in Stock Option Term

We are writing in reply to your letter dated April 1, 2002 requesting our comments on whether the extension of a stock option expiry term would result in the disposition of the stock option for purposes of the Income Tax Act (the "Act").

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. Although an advance income tax ruling will not be issued on this matter, we have provided you with the following comments.

Any "fundamental" change in an employee stock option agreement is considered to constitute the creation of a new stock option agreement, and thus causes a disposition of the employee's rights under the old stock option. Whether or not a change in the terms of an existing stock option agreement is "fundamental" is a question of fact that can only be determined after a review of the applicable law, the agreement and all of the relevant facts.

In John A. Amirault v MNR, 90 DTC 1330 (TCC), the court decided that a change in the strike price of a stock option agreement did not sufficiently alter the original agreement so as to rescind and replace it. On the other hand, in Wiebe & Bastien v The Queen, 87 DTC 5068 (FCA), the court found that the amendment to the plan substantially affected the "basic elements" of the original stock option agreement, and therefore represented a whole new agreement. In the Wiebe case, the existing plan was amended so that the consideration paid by the employees would include a personal guarantee with a bank for $20,000, and the amendment drastically affected the terms under which the employee could become a shareholder.

We are of the view that the extension of the expiry date of a stock option does not significantly vary the rights, liabilities or legal position of the parties as ascertained by the original stock option agreement. In our view there is no intent to cancel or rescind the original option but only to vary an element of the agreement. Consequently, where the only amendment to a stock option plan is the extension of the expiry date, the amendment will not create a new stock option agreement, and will not cause a disposition of the employee's rights under the old stock option.

We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.

Yours truly,

Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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