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.
Attention:
Dear Sirs:
Re: Options, Warrants, etc. as Flow-Through Shares
Further to your letter of March 31, 1985 and our telephone conversation of April 28, we are writing to clear up and misunderstanding which you may have regarding our current position in respect of options, warrants, etc. as flow-through shares.
It should be noted that the following comments were not requested of us in your letter of May 19, 1987.
It is our view that, in the context of a discussion on flow-through shares, an option is a right to have a share issued for the purpose of paragraph 66(15)(d.1) of the Income Tax Act (the “Act”). Even though the right is conditional (i.e. the holder of the option must exercise it and pay the option price) it is still a right for the purpose of 66(15)(d.1) of the Act.
It is our view that an option will be a flow-through share if it is a right to have a share issued pursuant to an agreement in writing to be entered into which meets the conditions set forth in subparagraphs 66(15)(d.1)(i) and (ii) of the Act. As long as the corporation agrees to incur expenses not exceeding the exercise price of the option and to renounce expenses not exceeding the exercise price of the option pursuant to the agreement to be entered into with respect to the issue, the option will qualify as a flow-through share.
It is our view that the agreement to issue the actual share is not entered into when the option is granted. It is only entered into when the option is exercised.
For the purposes of subsections 66(12.6), (12.62) and (12.64) of the Act, the share referred to is the flow-through share as defined in paragraph 66(15)(d.1) of the Act which includes an option. Therefore, expenses may be renounced with respect to an option that is a flow-through share for the period commencing with the date the agreement to issue the option was entered into. The amounts of any such renunciations cannot exceed the consideration paid for the option.
We trust that this will be of assistance.
Yours truly,for Director
Bilingual Services and Resource Industries Division
Rulings Directorate
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