8 February 1989 Income Tax Severed Letter 5-7351 -  

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.

S. Short (613) 957-2134

FEB 8 1989

Dear Sirs:

Re: Changes to Employee Stock Option Agreements Paragraph 110(1)(d) of the Income Tax Act ;

This is in reply to your January 5, 1989 correspondence requesting confirmation of the opinions expressed in our letter to you dated December 11, 1987. Our opinions were based on and in the context of the following hypothetical fact situation:

1. A public corporation has entered into agreements with certain of its employees whereby the corporation has agreed to issue shares of its capital stock at and for a price equal to the trading price on the relevant stock exchange on the day the agreement was entered into.

2. Since the date of the agreements, the market price of the shares has fallen significantly and the corporation wishes to enter into new agreements with the employees.

3. It is proposed that the old agreements will be cancelled and new agreements entered into on substantially the same terms as the old agreements except that the issue price in the new agreement will be reduced to equal the trading price on the date of the new agreement.

It would be our view that in the above situation, no benefit for the purposes of paragraph 7(1)(b) of the Income Tax Act (the "Act") would be considered to have been received by the employees as a result of the cancellation of the old agreements and the entering into the new agreement. IT-113R3

paragraph 11 supports this and a copy is enclosed for your perusal. We would also confirm that in the event that the old agreements are amended to reflect the current share price, the amended agreement could be considered to be a new agreement to issue shares for the purposes of paragraph 110(1)(d) of the Act and the date of that agreement would be the date of the amendment.

Once again, the above represents our opinion and is not a ruling binding upon the Department.

We trust the above will be of assistance to you.

Yours truly,

ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR

P.D. FUOCO

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch