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.
Dear Sirs:
Re: Option to acquire shares
We are writing in response to your letter of June 1, 1990 in which you requested our opinion regarding the tax treatment of the following hypothetical fact situation:
- 1. An individual who is a shareholder of a private corporation grants an option to another person to acquire shares of the private corporation held by the individual.
- 2. The individual subsequently repurchases the option from the taxpayer.
You have requested our opinion as to whether the amount paid by the grantor of an option the subject matter of which is shares of a private corporation (which are capital property to the grantor) results in a capital loss of the grantor or an increase in the adjusted cost base of the property to which the option pertains.
Our comments
- 1) We agree that provided the property to which the option pertains is a capital property, the initial granting of the option by the individual is subject to the provisions of subsection 49(1). That is, any consideration received for the granting of the option is a capital gain to the individual.
- 2) It is our view that the tax consequences of the subsequent repurchase by the individual who initially granted the option should be governed by paragraph 3 of Interpretation bulletin IT-403R which states that "where the grantor of any option purchases it back from the grantee and they are dealing at arm's length, the Department takes the position that the adjusted cost base of the property to the grantor is generally increased by the amount of the purchase price of the option from the grantee . . .", provided that the shares under the option are shares of a private corporation.
These options are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case and, as stated in paragraph 24 of Information Circular 70-6R, they are not binding on this Department.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1990
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1990
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