Subsection 7(1) - Agreement to issue securities to employees
Administrative Policy
13 November 2020 Internal T.I. 2020-0864831I7 - Equity award plan and recharge agreement
Under an RSU plan established by the U.S. public-company parent (“USCo”) of CanCo, awards of RSUs are made to participants, including CanCo...
Paragraph 7(1)(a)
Cases
Fink v. Canada (Attorney General), 2019 FCA 276
The taxpayer realized s. 7 stock option benefits as a result of the exercise of warrants that had been issued to him by his employer (ZCL), and...
Ferlaino v. Canada, 2017 FCA 105
The taxpayer was the Director of Taxes at a wholly-owned Canadian subsidiary of a NYSE-listed U.S. public company (“UTC”) who, following his...
Canada v. Morin, 2006 DTC 6057, 2006 FCA 25
The taxpayer entered into an arrangement with a consultant ("Bobsan") under which Bobsan would recommend to him firms within the high-tech area to...
Clemiss v. The Queen, 92 DTC 6509, [1992] 2 CTC 232 (FCTD)
Reed J. accepted the Crown's submission that the taxpayer's purported acceptance of his employer's offer, set out in an option agreement, to issue...
The Queen v. Gesser Estate, 92 DTC 6273, [1992] 2 CTC 26 (FCA)
In 1970 an executive ("Gesser") entered into a letter of agreement with his employer ("Cemp") which confirmed the purchase by Gesser of 8,400...
Scott v. The Queen, 91 DTC 5268, [1991] 1 CTC 395 (FCTD), varied 94 DTC 6193 (FCA)
The taxpayer, whose services were provided to a corporation ("Nighthawk") by a corporation ("Delsco") owned by his wife and the spouses of members...
Steen v. The Queen, 86 DTC 6498, [1986] 2 CTC 394 (FCTD), aff'd 88 DTC 6171, [1988] 1 CTC 256 (FCA)
An employee "acquires" shares pursuant to a stock option agreement at the time he exercises his option to purchase shares from his corporate...
Mansfield v. The Queen, 83 DTC 5136, [1983] CTC 97 (FCTD), aff'd 84 DTC 6535, [1984] CTC 547 (FCA)
In 1972, the taxpayer and other employees of a private company were offered convertible debentures of their employer which, in the case of the...
Grant v. The Queen, 74 DTC 6252, [1974] CTC 332 (FCTD)
The effect of two resolutions and applications for shares by the company's employees was to create binding agreements. The taxpayer "acquired" his...
See Also
Ferlaino v. The Queen, 2016 TCC 105 (Informal Procedure)
The taxpayer was the Director of Taxes at a wholly-owned Canadian subsidiary of a NYSE-listed U.S. public company (“UTC”) who, following his...
Van de Velde v. The Queen, 2007 DTC 1314, 2007 TCC 533 (Informal Procedure)
RSUs (which Miller J. appeared to treat as securities) did not have their value included in his income until the time that his entitlement to them...
Regan M. Williams, Appellant v. Her Majesty the Queen, Respondent, 97 DTC 887, [1997] 2 CTC 2151 (TCC)
When the taxpayer exercised stock option rights, he did so as nominee for others. Accordingly, he had not "acquired" (i.e., obtained for himself)...
Bertram v. The Queen, 93 DTC 1251, [1993] 2 CTC 2982 (TCC)
Although the taxpayers purported to exercise employee stock options and assign them for the exercise price to the purchaser of shares of the...
Stafford v. The Queen, 93 DTC 438, [1993] 1 CTC 2284 (TCC)
In order to evade limitations established by the Vancouver Stock Exchange as to the number of shares a stock promoter was permitted to have the...
Ball v. MNR, 92 DTC 2123, [1992] 2 CTC 2770 (TCC)
The taxpayer was granted an option to purchase 25,000 shares of his employer at a price of $2.05 per share. On July 10, 1985 the taxpayer...
Tedmon v. MNR, 91 DTC 962, [1991] 2 CTC 2128 (TCC)
The taxpayer while a resident of the U.S. and while employed by a U.S. company ("GE") was granted stock options by GE. He subsequently resigned...
Ingram v. MNR, 91 DTC 939, [1991] 2 CTC 2259 (TCC)
The taxpayer was asked by some stock promoters to sit on the board of a junior company listed on the Vancouver stock exchange, to give them the...
Administrative Policy
1 August 2019 Internal T.I. 2018-0781951I7 - Employee benefit plan and recharge agreement
Parentco funded and administered a performance share plan (“PSP”) for employees of group companies, including Canco (a subsidiary). A PSP...
2015 Ruling 2015-0589471R3 - Earnout
The (corporate) shareholders of Holdco (a Canadian-controlled private corporation) wish to accommodate the purchase of shares of the Holdco for an...
1 June 2015 External T.I. 2015-0581311E5 - Application of section 7 to employee share purchase
Holdco, which owns substantially all of the shares of Opco, agrees to sell shares of Opco to one of Opco's employees at a price which is intended...
4 May 2015 External T.I. 2013-0502761E5 F - Stock Options and Earnout
At the very moment of the acquisition by employees of shares under a stock options agreement, it is agreed that their shares will be subsequently...
20 March 2015 External T.I. 2014-0526941E5 - RSU Plan-Cash Dividend Equivalents
CRA noted that "generally, an RSU that provides an employee with the right to acquire a share of an employer, subject to certain vesting...
24 March 2015 External T.I. 2012-0432951E5 F - Application of section 7
A non-resident parent acquires its own shares on the open market and resells those shares to its Canadian subsidiary at fair market value. By...
25 September 2013 External T.I. 2011-0428941E5 F - Transfer of Stock Options to Protective Trust
An employee of a CCPC transfers stock options to a protective trust in his favour, with the options eventually being distributed to the employee...
19 July 2013 External T.I. 2012-0458961E5 F - Stock option, cashless exercise
A cashless exercise method of exercising employee stock options is utilized under which identical shares are sold short through a broker, with the...
28 December 2012 Guide T4130
When a corporation agrees to sell or issue its shares to an employee, or when a mutual fund trust grants options to an employee to acquire trust...
2004 Ruling 2004-007204
Ruling respecting a deferred share unit plan under which the board of directors in its discretion could elect to pay the director participants in...
18 August 2004 External T.I. 2004-0070361E5 - "cashless exercise" of employee stock options.
An employee generally will acquire shares pursuant to a stock option plan at the time of exercise. In the case of utilization of the cashless...
9 July 2002 External T.I. 2002-0147985 F - ACTIONS PRIVILEGIEES CONVERTIBLES
Regarding convertible preferred shares issued to an employee, CCRA stated:
[W]hen the preferred shares were issued, the corporation agreed to...
1 March 2002 External T.I. 2002-0118215 F - ACTIONS EMISES GRATUITES AUX EMPLOYES
Before going on to describe the application of the ss. 7(1.1) and 110(1)(d.1) rules to shares issued for no consideration by a CCPC to employees,...
2002 Ruling 2001-0115933 - STOCK OPTIONS CORPORATE PARTNERSHIP
Where two trusts and a corporation are the limited partners and a second corporation is the general partner of a partnership, benefits under a...
2001 Ruling 2001-0084013 - STOCK OPTIONS
A change to the vesting of options granted under a stock option plan would not result in a new plan being created for income tax purposes....
2001 Ruling 2001-0077753 - DIRECTORS FEES & STOCK OPTIONS
Confirmation that where employees of the general manager of two partnerships sit on the board of directors of corporations on behalf of their...
1999 APFF Round Table, Q. 1 (No. 9M19190)
Where an American citizen, who received stock options from an American public corporation while working for it and living in the United States,...
30 November 1996 Ruling 9716083 - AMERICAN DEPOSITARY SHARES, OPTIONS
American depositary shares would be considered to be shares for purposes of s. 7, as CRA previously had concluded that they were shares for...
21 October 1996 Internal T.I. 960437A - PARTNERSHIPS AND STOCK OPTIONS
Where the employees of a partnership are granted stock options by a corporate partner, they generally will be considered to be employees of each...
2 June 1995 External T.I. 9504725 - EMPLOYEE STOCK OPTION PLAN
"When a person enters into an agreement to sell certain shares but retains the option to pay cash instead of delivering the shares, we would not...
20 January 1994 T.I. 940074 HAA4735-1 (C.T.O. "Section 7 Employees Profit Sharing Plans")
An employees profit sharing plan can be structured to be an agreement by an employer to sell or issue shares of the employer or a non-arm's length...
11 June 1993 T.I. (Tax Window, No. 31, p. 10, ¶2519)
Where an employee surrenders her rights under a phantom stock plan and receives an option to acquire shares in the employer company with an...
Tax Professionals Mini Round Table - Vancouver - Q. 4 (March 1993 Access Letter, p. 102)
Discussion of criteria for determining the "value" of publicly treated shares for purposes of s. 7(1)(a).
5 November 1991 Memorandum (Tax Window, No. 12, p. 8, ¶1561)
In contrast with its approach to dividend reinvestment plans, RC will assess an employee benefit where shares are acquired by an employee at a 5%...
27 March 1990 T.I. (August 1990 Access Letter, ¶1362)
The employee would be considered to have "acquired" shares where he is issued a restricted share which cannot be transferred or sold during the...
86 C.R. - Q.64
a director is an employee for purposes of s. 7.
IT-113R4 "Benefits to Employees-Stock Options"
6. ...The word "issue" means to deliver unissued shares of a corporation, including...for no monetary consideration. Therefore, section 7 applies...
IC 89-3 "Policy Statement on Business Equity Valuations", para. 38
The reference to "value" is generally interpreted to mean fair market value.
Articles
Christina Medland, Andrew Stancel, "Tax-effective Risk-adjusted Incentive Arrangements for Public Companies", Taxation of Executive Compensation and Retirement, Vol. 22, No. 9, May 2011
Includes overview of treasurey RSU and PSU plans.
Christina Medland, Jennifer Sandford, "Tax Treatment of Share-Based Compensation", Taxation of Executive Compensation and Retirement, September 2005, p. 583.
Scott Sweatman, Richard Schubert, "Long Term Incentives for Employees of Income Trusts", Taxation of Executive Compensation, Vol. 15, No. 2, September 2003, p. 319.
Michael F.T. Addison, Gil J. Korn, "Employee Stock Options: An Up-Date", Personal Tax Planning, 2000 Canadian Tax Journal, Vol, 48, No. 3, p. 778.
Singer, "Forward Participating Shares - A Question by Revenue Canada", Taxation of Executive Compensation and Retirement, June 1992, p. 622.
Lee, "Stock-Based Compensation: Selected Regulatory and Taxation Issues", 1991 Corporate Management Tax Conference Report, c. 4.
Dunbar, "Time of Acquisition of Restricted Shares May Determine Value of Stock Option Benefit", Taxation of Executive Compensation and Retirement, November 1990, p. 361
Further discussion of 27 March 1990 T.I. (see August 1990 Access Letter, ¶1362).
Paragraph 7(1)(b)
Commentary
Under s. 7(1)(b) an employee will be deemed to receive a taxable benefit equal to the value of any consideration received on the disposition of an...
Cases
Buccini v. Canada, 2000 DTC 6685 (FCA)
Following the amalgamation of the taxpayer's employer with other Canadian subsidiaries of the U.S. parent, the taxpayer executed a settlement...
Bernier v. Canada, 2000 DTC 6053 (FCA)
In the course of preparing a response to a proposed acquisition of the employer ("Nordair") by another corporation ("CP Air"), Nordair discovered...
Dundas v. The Queen, 95 DTC 5116, [1995] 1 CTC 184 (FCA)
After the amalgamation of a Canadian corporation ("Canadian Reserve I") with a wholly-owned subsidiary of the U.S. parent of Canadian Reserve I,...
Hale v. The Queen, 90 DTC 6481, [1990] 2 CTC 247 (FCTD), aff'd 92 DTC 6473 (FCA)
While resident in Canada, the taxpayer was granted rights under the employee stock option plan of his Canadian employer (Alcan) and further "share...
Beaumont v. The Queen, 86 DTC 6264, [1986] 1 CTC 507 (FCTD), aff'd 88 DTC 6522, [1988] 2 CTC 365 (FCA)
Since the taxpayer was held to be dealing at arm's length with a corporation ("Clarebeau") 1/2 of whose shares were owned by the taxpayer's family...
Greiner v. The Queen, 84 DTC 6073, [1984] CTC 92 (FCA)
Prior to the effective date of an amalgamation squeeze out, the taxpayer agreed to surrender his unvested stock option rights in consideration for...
The Queen v. Harvey, 83 DTC 5098, [1983] CTC 63 (FCTD)
Prior to the effective date of a merger between a Michigan corporation ("Tranter") and a second American corporation, Tranter approached Harvey...
See Also
Des Groseillers v. Agence du revenu du Québec, 2019 QCCQ 1430, rev'd 2021 QCCA 906
The individual taxpayer (“Des Groseillers”), who was the chair and CEO of an electronics products company (“ATBM”) and who had been...
Bowens v. The Queen, 94 DTC 1853, [1994] 2 CTC 2404 (TCC), aff'd 96 DTC 6128 (FCA)
When a corporation ("Trilogy") made an offer to acquire all the shares of a corporation ("DEB"), including any outstanding stock options, the...
R. v. Anderson, 75 DTC 5393, [1975] C.T.C. 659 #1, [1975] C.T.C. 659, [1975] C.T.C. 658 (FCA), briefly aff'd 77 DTC 5044 (SCC)
After the employer corporation ("Bethel") granted options to purchase its shares to the taxpayer and other employees, it commenced winding-up...
Administrative Policy
28 September 2020 External T.I. 2020-0840681E5 - Deduct for income tax withholding on s.7 benefit
An employee who otherwise would be entitled to receive, say, 30 shares of the employer’s parent (ParentCo) as a result of restricted share units...
3 August 2016 External T.I. 2015-0572381E5 - Employee Stock Option-CCPC Shares
A Canadian-controlled private corporation issues treasury shares to the employee holder of a stock option (with a fair market value exercise...
16 June 2016 External T.I. 2015-0623031E5 F - Application of paragraph 7(1)(b)
In the course of the acquisition of shares in the capital of a Corporation, it cancels stock options of certain employees for an amount...
7 May 2015 External T.I. 2015-0570801E5 - Exchange of Stock Options-7(1)(b) Applies
In an exchange of employee stock options in a takeover situation which does not satisfy the conditions in s. 7(1.4), will the value of the old...
7 October 2011 Roundtable, 2011-0412031C6 F - Options, vente à découvert
On December 1, an employee advised his broker of his intention to exercise his 5,000 employee options and to monetize them. On the same day, the...
18 December 2003 Internal T.I. 2003-0044007 F - OPTION D'ACHAT D'ACTIONS RACHETEES
The taxpayer surrendered his stock options to his arm’s-length employer for consideration that was payable partly up front and partly in...
16 November 2000 Internal T.I. 2000-0035067 F - ALLOCATION DE RETRAITE
Regarding a terminated employee who received damages (pursuant to a settlement of his action) as compensation for lost benefits under the stock...
Income Tax Technical News No. 19, 16 June 2000
Where under a securities option plan "an employee has the right to choose to receive the fair market value of the securities option rights in...
1999 Ruling 9902593 - STOCK OPTIONS - CASH-OUT RIGHT
Canadian employees of a Canadian subsidiary of a foreign parent had "subscription rights" to acquire unlisted ordinary shares of the foreign...
22 July 1999 External T.I. 9833815 - CASH-OUT OPTION ADDED TO STOCK OPTION PLAN
If an existing stock option arrangement under which only the employee has the right to elect to receive cash instead of shares has changed so that...
21 January 1998 External T.I. 9731165 - EXCHANGE OF EMPLOYEE STOCK OPTIONS
"When section 7(1)(b) applies to the exchange of an old option for a new option, it is our opinion that, for the purposes of any subsequent...
IT113R4 "Benefits to Employees - Stock Options" 7 August 1996
7. Section 7 applies where a corporate employer issues shares to an employee as a salary bonus or under a stock bonus plan. ...
11. … Where,...
Income Tax Technical News, No. 7, 21 February 1996 (cancelled)
Where under an employee stock option plan, it is the employee rather than the employer who has the option to choose cash instead of shares, s....
Income Tax Technical News, No. 1, 22 July 1994
If an employee compensation package includes any convertible preferred shares, s. 7(1) will apply when those shares are sold or converted to...
17 February 1994 External T.I. 9401375 - HAA4735-1 PAYMENTS IN LIEU OF SHARES, STOCK OPTION PLAN
Where an employee may elect to receive cash instead of shares under an employee stock option plan, any benefit will be included in her income...
1 May 1991 T.I. (Tax Window, No. 3, p. 28, ¶1224)
Where a stock option plan provides that, at the time the option otherwise would be exercisable, the employee may elect to receive cash in lieu of...
Articles
Peter Lee, Paul Stepak, "PE Investments in Canadian Companies", draft 2017 CTF Annual Conference paper
Difficulty in having employee optionholders share in post-closing adjustments (p. 24)
Sellers, especially PE sellers, will often expect that...
Anna Malazhavaya, "Stock Options and Foreign", Taxation of Executive Compensation and Retirement, Vol. 23, No. 1, July/August 2011, p. 143
Where a foreign corporation repurchases its own shares and then transfers those same shares to an employee under a stock option plan, it would...
Jeremy Forgie, Elizabeth H. Boyd, "Tax Issues Relating to Stock Options in the Context of Corporate Mergers, Acquisitions and Reorganizations", Taxation of Executive Compensation and Retirement, Vol. 11, No. 5, December/January 2000, p. 224.
Elizabeth H. Boyd, "Stock Options and Other Executive Compensation Arrangements in a Reorganization, Merger or Acquisition - Tax Issues", Taxation of Executive Compensation and Retirement, Vol. 10, No. 1, July/August 1998, p.3.
Paragraph 7(1)(c)
Administrative Policy
1 December 2009 External T.I. 2009-0307821E5 - TFSA Contributions - Options and Warrants
What are the tax consequences of an employee stock option being contributed to a TFSA? CRA responded:
[T]he property must be contributed to the...
2002 Ruling 2001-0107613 - EMPLOYEE OPTION TRANSFERS
Where an arm's length employee transfers options to a personal holding company for no consideration, he will not, except as provided by s. 7, be...
13 March 2001 External T.I. 2000-0051295 F - Placements admissibles - actions
Regarding the transfer of convertible preferred shares, which had been issued by the employer, by an employee to the individual’s RRSP, CCRA...
31 October 1996 External T.I. 9634335 - RRSP OPTIONS
"Where an employee stock option is a qualified investment for an RRSP trust and it is disposed of by the employee to his or her RRSP or spousal...
28 April 1995 External T.I. 9503445 - STOCK OPTION IN RRSP
Where an employee has transferred a stock option to her RRSP, the difference between the value of the share and the exercise price will be...
12 December 1989 Memorandum (May 1990 Access Letter, ¶1207)
Where an employee held unexercised employee stock options at the time of his death, no amount will be included in the income of the deceased or...
Paragraph 7(1)(e)
Administrative Policy
7 October 2020 APFF Financial Strategies and Instruments Roundtable Q. 6, 2020-0851631C6 F - Options d’achat d’actions - disposition au décès
S. 110(1)(d.01) provides for an additional ½ deduction (so as to result in a nil taxable income inclusion) where the s. 110(1)(d) deduction was...
16 June 2014 STEP Roundtable, 2014-0523011C6 - STEP Roundtable 2014-7(1)(e)
How does s. 7(1)(e) apply if a deceased employee held unvested stock options which therefore are not exercisable after death? CRA...
21 December 2012 Internal T.I. 2009-0327221I7 - Paragraph 7(1)(e) - Death of a Taxpayer
CRA stated:
Where an employee stock option provides that the option is automatically cancelled on death of an employee, the value of the option...
May 19 1995 Executive Institute Round Table, Q. 24 (C.T.O. "Employee Stock Option")
An employer is required to issue a T4 in the year of death of an employee computing the benefit under s. 7(1)(e).
26 April 1990 Memorandum (September 1990 Access Letter, ¶1442)
Discussion of state of law prior to enactment of s. 7(1)(e).
Subsection 7(1.1) - Employee stock options
Cases
Wiebe v. The Queen, 87 DTC 5068, [1987] 1 CTC 145 (FCA)
A stock option agreement which the trial judge found to have been in place in 1972 or 1973 was held to have been so radically altered in its terms...
Administrative Policy
16 May 2001 External T.I. 2001-0080495 F - OPTION D'ACHAT D'ACTIONS
After giving an overview of s. 7(1.1), including the CCRA position that it can apply even if the corporation ceased to be a CCPC after the...
28 May 2018 External T.I. 2017-0692931E5 - Employee stock options - Bankruptcy
An arm’s length employee (“Employee”) exercises stock options in Year 1 to acquire shares of the employer Canadian-controlled private...
3 January 2018 Internal T.I. 2017-0709811I7 - Withholding on CCPC stock option benefit
CRA confirmed that by virtue of an exception to the s. 153(1.01)withholding rule in s. 153(1.01)(b), this withholding requirement does not apply...
7 October 2016 APFF Roundtable Q. 21, 2016-0655901C6 F - Section 7 and bonus paid in share
CRA considers that where a Canadian-controlled private corporation has agreed in writing “to award a bonus based on the employee reaching...
13 January 2005 External T.I. 2004-0101701E5 F - Bien substitué
CRA found that the substituted property definition in s. 248(5)(b) did not apply for the purposes of s. 7(1.1) since the latter did not use the...
10 November 2002 Roundtable, 2002-0156845 F - CONGRE 2002 APFF
An employee exercised stock options in 2001 after the CCPC employer became a public corporation and the shares had substantially appreciated –...
1 March 2002 External T.I. 2002-0118215 F - ACTIONS EMISES GRATUITES AUX EMPLOYES
After indicating that the s. 7 rules were applicable to shares issued for no consideration to employees of a CCPC, CCRA went on to describe the...
21 October 1996 External T.I. 9633215 - EMPLOYEE STOCK OPTIONS TRANSFER TO RRSP
"Where an employee stock option is transferred by the employee to a non-arm's length person such as an RRSP under which the employee is the...
28 July 1992 T.I. (Taxation of Executive Compensation and Retirement, November 1992, pp. 682-683)
The preferential rules for a Canadian-controlled private corporation will be applicable after the corporation becomes a public corporation only in...
28 May 1990 T.I. (October 1990 Access Letter, ¶1450)
S.7(1.1) will be available to an employee under a plan who can elect to receive either cash or shares as a year-end bonus, and he elects to...
Subsection 7(1.3) - Order of disposition of securities
Administrative Policy
7 October 2011 Roundtable, 2011-0399421C6 F - Options, biens identiques, PBR
A taxpayer who holds securities both acquired on the market and under s. 7(1) then acquires more of the same securities under a s. 7(1) exercise...
Income Tax Technical News No. 19, 16 June 2000
Under "Change of Position in Respect of GAAR - Section 7".
15 October 1997 External T.I. 9725315 - CCPC OPTIONS
Where an employee/shareholder owns shares of a CCPC which have a nominal adjusted cost base and subsequently acquires shares under a stock option...
25 October 1999 External T.I. 9909565 - SECTION 7 IDENTICAL SHARES7
Discussion of the order of disposition of identical shares, some acquired under option and some not, for the purposes of s. 7.
Subsection 7(1.31)
Administrative Policy
12 September 2022 External T.I. 2021-0886441E5 - Restricted Stock Unit Plan – Adjusted Cost Base
An employee who acquired 10 common shares of the employer, a public corporation, on capital account, was also issued, for no consideration (other...
7 October 2021 APFF Financial Strategies and Instruments Roundtable Q. 7, 2021-0899681C6 F - Stock option, Short sale and Identical property
An employee, who engages in a short sale transaction to finance the exercise of stock options on the shares of the individual’s employer, short...
6 December 2016 External T.I. 2015-0605971E5 - Paragraph 110(1)(d.01) deduction
Would the taxpayer be required to file an s. 7(1.31) election if the taxpayer were entitled to an s. 110(1)(d.01) deduction by virtue of s....
9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 2, 2015-0595841C6 F - Stock option, disposition, newly-acquired security
A, who is the sole shareholder of Holdco and also holds low-cost shares of PublicCo, will exercise his option to acquire 100,000 shares of...
8 October 2010 Roundtable, 2010-0370501C6 F - Options, don, coût moyen, PBR
Is s. 7(1.31)(b) elective, so that a taxpayer can choose to not designate the shares and use the cost-averaging method in a situation where the...
Subsection 7(1.4) - Exchange of options
Administrative Policy
2021 Ruling 2020-0852951R3 - Public Spin-Off Butterfly
Parent, a listed corporation with a specified shareholder (and perhaps with two classes of multiple voting and single voting shares), wishes to...
2015 Ruling 2014-0558831R3 - No-type of property spin-off butterfly
A butterfly spin-off by a specified corporation (DC) of two business divisions (which it prepackages in a Newco subsidiary) to “Spinco”...
7 May 2015 External T.I. 2015-0570801E5 - Exchange of Stock Options-7(1)(b) Applies
An exchange of s. 7 stock options of an employee on Target shares for options on Buyer's shares does not qualify under s. 7(1.4). CRA indicated...
S4-F7-C1 - Amalgamations of Canadian Corporations
1.81 Subsection 87(5) does not apply where an employee holds rights under an agreement to acquire shares of a predecessor corporation and...
9 February 2010 Internal T.I. 2009-0333571I7 F - Paragraphe 7(1.5) - contrepartie reçue
Employees of a CCPC (Corporation A) , including non-residents, disposed of shares of Corporation A, that they had acquired on exercising their s....
2009 Ruling 2009-0338731R3 - Public spin-off butterfly
underline;">: Overview. Public company spin-off butterfly by DC of Spinco including splitting of stock options..
Option exchange
DC had an option...
2004 Ruling 2004-005817
Ruling that the rules in ss. 7(1.4)(d) to (f) will apply where an Optionee exchanges his or her existing options for a Substituted Right (with...
7 October 1997 External T.I. 9724275 - OPTION PRICE REDUCTION, DISPOSITION
RC followed Amirault v. MNR, 90 DTC 1330 (TCC) in indicating that a reduction in the exercise price for an employee stock option would not...
30 November 1996 Ruling 9716083 - AMERICAN DEPOSITARY SHARES, OPTIONS
The addition of dividend equivalent rights to stock options received on a merger would constitute additional rights for purposes of s. 7(1.4).
27 March 1992 T.I. (Tax Window, No. 18, p. 16, ¶1840)
The 1991 amendment to s. 7(1.4) eliminated the requirement that a corporate reorganization take place in order for the subsection to apply.
25 September 1991 Memorandum (Tax Window, No. 9, p. 10, ¶1471)
S.7(1.4) does not apply in a takeover situation where stock options of the target are exchanged for stock options of the acquiring company and the...
Articles
Eva M. Krasa, "Exchange of Stock Options Under Subsection 7(1.4): Some Unexpected Issues", Taxation of Executive Compensation and Retirement, Vol. 20, No. 6, February 2009
Includes discussion of effect on valuation test of an increase in value of Acquireco shares subsequent to agreement date, earn-out; multiple...
K.A. Siobhan Monaghan, "Reorganization of Stock Options in the Context of a Dividend-in-Kind", Corporate Structures and Groups, Vol. IV, No. 4, 1997, p. 232.
Subsection 7(1.5) - Rules where securities exchanged
Administrative Policy
9 February 2010 Internal T.I. 2009-0333571I7 F - Paragraphe 7(1.5) - contrepartie reçue
Under a stock option plan of Corporation A, Canadian-controlled private corporation, employees received options to purchase Class A shares of...
9 July 2002 External T.I. 2002-0147985 F - ACTIONS PRIVILEGIEES CONVERTIBLES
Regarding convertible preferred shares issued to an employee, CCRA stated:
By virtue of subsection 7(1.1), paragraph 7(1)(a) applies during the...
20 March 2001 External T.I. 2001-0071445 - ESOP EXCHANGE OF SHARES
S.7(1.5) is not available where the proceeds for the exchange of shares include a put right, even if the put right has nominal value. Accordingly,...
23 March 1995 External T.I. 9500405 - STOCK PURCHASE PLAN
Where an individual transferred his shares of an CCPC to his holding company, the fact that he elects an amount under s. 85(1) greater that the...
13 October 1994 External T.I. 9425475 - 7(1.5) APPLICATION WHIT NON SHARE CONSIDERATION
RC intimated that it would be prepared to apply its position that s. 85.1(1) applies to some transfers where non-share consideration also is...
2 December 1993 T.I. 933266 (C.T.O. "Adjustments to ACB of Section 7 Shares")
S.7(1.5) will apply where an employee elects under s. 85(1) to be deemed to receive proceeds of disposition of the share in excess of its...
19 February 1992 T.I. (Tax Window, No. 16, p. 12, ¶1756)
By virtue of s. 7(1.5)(g), the rules in s. 7(1.5) will apply to reorganizations involving more than one exchange of shares.
9 January 1992 T.I. (Tax Window, No. 15, p. 19, ¶1691)
Relief of the type described in s. 7(1.5) is not available to a transfer to which s. 85(1) applies.
21 September 1990 T.I. (Tax Window, Prelim. No. 1, p. 5, ¶1001)
The favourable treatment accorded under s. 7(1.1) will apply if there has been both a share-for-share exchange and an amalgamation.
86 C.R. - Q.65
S.86 was knowingly excluded.
Articles
Firoz Ahmed, "Treatment of Employee Stock Options in Corporate Reorganizations", Canadian Current Tax, Vol. X, No. 3, December 1999, p. 23.
Dunbar, "Draft Tax Amendments Correct Technical Deficiencies in Stock Benefit Provisions", Taxation of Executive Compensation and Retirement, September 1990, p. 330.
Subsection 7(2) - Securities held by trustee
Cases
MNR v. Chrysler Canada Ltd., 92 DTC 6346, [1992] 2 CTC 95 (FCTD)
After finding (below) that the Chrysler employee stock ownership plan was both an employee benefit plan and an agreement to issue shares to...
Re MNR and Chrysler Canada Ltd., 91 DTC 5526, [1991] 2 CTC 156 (FCTD)
Chrysler (U.S.) contributed treasury shares to a trust for the benefit of its employees and those of Chrysler Canada. Chrysler Canada reimbursed...
See Also
Black v. The King, 2024 TCC 96
A year before a sale of 61% of a private Canadian video gaming company for Cdn.$73 million (with the balance of the company sold two years later...
Administrative Policy
7 October 2021 APFF Roundtable Q. 1, 2021-0900891C6 F - Tax treatment of employee share trust
A discretionary trust for present and future employees of ABC Inc. that had held shares of ABC Inc. since January 1, 2021, will add Mr. X as a...
19 September 2016 Internal T.I. 2016-0641841I7 - Employee stock option rules
CRA first stated that Placer Dome, Chrysler and McAnulty “stand for the proposition that an arrangement to issue or sell shares need not be a...
3 December 2009 External T.I. 2009-0311921E5 F - ESOP-US
Does s. 7 apply where a trust created under an employee stock ownership plan (the "Plan") acquires all of the shares of USCO and each year the...
2 May 2001 Internal T.I. 2001-007939 F - CONVENTION D'EMISSION D'ACTIONS
After providing an overview of s. 7(2), the Directorate noted that in this case whether it applied turned on a factual determination of whether...
2 February 2001 Internal T.I. 2000-0058127 F - Convention d'émission d'actions
In the course of a general discussion, the Directorate noted that the application of s. 7 was not restricted to stock options and that it could...
3 May 1994 External T.I. 9409755 - TAX ADJUSTMENT FOR FORFEITURE UNDER STOCK OPTION
S.7(2) deems an employee to have acquired a share at the time a trustee commences to hold it for the employee, even if the employee's entitlement...
Articles
Elizabeth Boyd, Jeremy J. Herbert, "Trusts Holding Shares For Employees", draft 2023 CTF Annual Conference paper
Use of s. 7(2) trusts predominantly by CCPC employers (p. 22)
- S. 7(2) trusts are not common where the employer is not a CCPC, since the employee...
Ian MacDonald, "Trusts Holding Employee Shares - After the Initial Transfer", Taxation of Executive Compensation and Retirement, Vol 22, No.10, June 2011, p. 1415:
There are a number of indicators which suggest that an s. 7(2) trust is not governed by various employee benefit plan rules.
Subsection 7(3) - Special provision
Paragraph 7(3)(a)
Cases
Des Groseillers v. Quebec (Agence du revenu), 2022 SCC 42
An individual who donated some of his employee stock options on the shares of a public company to arm's length registered charities, claimed the...
See Also
Agence du revenu du Québec v. Des Groseillers, 2021 QCCA 906, aff'd 2022 SCC 42
An individual who donated some of his employee stock options on the shares of a public company to arm's length registered charities, claimed the...
Des Groseillers v. Agence du revenu du Québec, 2019 QCCQ 1430, rev'd 2021 QCCA 906
An individual (Des Groseillers) who donated some of his employee stock options on the shares of the qualifying person (“BMTC”) to arm's length...
Rogers Estate v. The Queen, 2015 DTC 1029 [at at 124], 2014 TCC 348
The taxpayer, who was the CEO of a Canadian corporation ("RCI") whose voting and non-voting shares both traded on the TSX, did not deal at arm's...
Mathieu v. The Queen, 2014 TCC 207
In successive years, the taxpayer cash-surrendered employee stock options to the corporation ("Forages Garant") which had granted the options. ...
Ward v. The Queen, 98 DTC 2097, [1998] 4 CTC 2129 (TCC)
Shares issued to the taxpayer were found to be in satisfaction of consulting fees owed to him that had been written off by the corporation in...
Aylward v. The Queen, 87 DTC 1097 (TCC)
Before concluding that s. 7(1.1) governed the issuance of shares to the taxpayer, Margeson TCJ. found that they were issued to the taxpayer in...
Administrative Policy
7 October 2016 APFF Roundtable Q. 21, 2016-0655901C6 F - Section 7 and bonus paid in share
In accordance with the terms of the employment contract, a Canadian-controlled private corporation pays a bonus to an employee which is payable in...
11 October 2013 Roundtable, 2013-0495911C6 F - Insurable employment
Two corporations, each having a sole shareholder, are partners of a partnership ("S.E.N.C.") which, in turn, pays salaries directly to each such...
2004 Ruling 2004-0056921R3 - stock options; conversion of plans
The replacement of a SAR plan of a private-company (CCPC) employer with an agreement to acquire its preferred and common shares that is subject to...
2004 Ruling 2004-0056921R3 - stock options; conversion of plans
Ruling that s. 7(3)(a) would govern a plan under which a Canadian-controlled private corporation agrees to issue common shares and preferred...
2002 Ruling 2001-0107613 - EMPLOYEE OPTION TRANSFERS
Where an arm's length employee transfers options to a personal holding company for no consideration, he will not, except as provided by s. 7, be...
8 January 2001 Internal T.I. 2000-0053657 - RETIRING ALLOWANCE TERMINATION
A s. 7 employee stock option plan can be implemented in substitution for an existing SAR Plan without any immediate tax consequences. "However, we...
10 May 2001 External T.I. 2001-0075685 - EMPLOYEE STOCK OPTION IN A RRSP
Where an employee has contributed employee stock options to his RRSP, by virtue of s. 7(3)(a) there would be no income inclusion at the time of...
26 June 2000 External T.I. 2000-0018205 - Options, non-aim's length transfer
Where an employee transfers employee stock options to a wholly-owned corporation ("Holdco"), then by virtue of s. 7(3)(a) a benefit from his stock...
10 August 2000 External T.I. 2000-0016875 - SAR DISPOSITION, SHARES
Where an employee exercises his or her SAR rights and the property received is shares of a CCPC that is the employer, the provisions of s. 7 will...
18 February 1999 Internal T.I. 9900816 - STOCK OPTIONS, 7(3)(B), U.S. PARENT
Where Canadian employees of a Canadian corporation are eligible to participate in an employee stock option plan of an indirect U.S....
6 December 1995 External T.I. 9527035 - TAXATION OF BENEFIT OF EMPLOYEE SHARE OFFERING
"If a benefit is received by an individual qua employee, paragraph 7(3)(a) requires that it be taxed under section 7 and not under any other...
Paragraph 7(3)(b)
Cases
The Queen v. Placer Dome Inc., 92 DTC 6402, [1992] 2 CTC 99 (FCA)
In finding that an employee stock purchase plan (under which employees contributed up to 6% of their salary and the taxpayer and its affiliated...
Kaiser Petroleum Ltd. v. The Queen, 90 DTC 6034, [1990] 1 CTC 62 (FCTD), rev'd 90 DTC 6603 (FCA)
In an agreement between the U.S. parent of the taxpayer and Kaiser Resources Ltd. for the sale of shares of the taxpayer to Kaiser Resources Ltd....
See Also
Transalta Corporation v. The Queen, 2012 DTC 1106 [at at 3044], 2012 TCC 86
Near the beginning of each year, the taxpayer would notify each of its executives that an award of units (within a specifed range) would be made...
Administrative Policy
17 May 2023 IFA Roundtable Q. 1, 2023-0964391C6 - stock based compensation and transfer pricing
CRA confirmed that it was appropriate to consider taking into account stock-option compensation expenses incurred by Canco in relation to its...
13 November 2020 Internal T.I. 2020-0864831I7 - Equity award plan and recharge agreement
Under an RSU plan established by the U.S. public-company parent (“USCo”) of CanCo, awards of RSUs are made to participants, including CanCo...
28 September 2020 External T.I. 2020-0840681E5 - Deduct for income tax withholding on s.7 benefit
Each employee of a Canadian subsidiary (“EmployerCo”) of a U.S. parent (“ParentCo”) is granted restricted share units (“RSUs”). Each...
1 August 2019 Internal T.I. 2018-0781951I7 - Employee benefit plan and recharge agreement
Parentco funded and administered a performance share plan (“PSP”) for employees of group companies, including Canco (a subsidiary). A PSP...
19 September 2016 Internal T.I. 2016-0641841I7 - Employee stock option rules
In response to several enquiries from auditors on the meaning of “agreement” for the purposes of ss. 7 and 110(1)(d), the Directorate first...
29 July 2016 Internal T.I. 2015-0600941I7 - Share Based Deferred Compensation - Section 7
The “Plan” provides for shares of USco to be issued to employees of its Canadian subsidiary (Canco) under the Deferred Stock, Restricted...
15 April 2009 Internal T.I. 2008-0301171I7 F - 7(3)b) vs 143.3(3)
Pubco (a Canadian public corporation) issues stock options (the “Options”) to certain employees (the "Participants") with an exercise price...
3 May 2005 External T.I. 2005-0124261E5 - Employee Stock Purchase Plan
A corporate employer contribute amounts to a newly-established trust from time to time, and the trustee uses those contributions to acquire shares...
2005 Ruling 2005-0120771R3 - Stock option plan
The two equal partners (“PartnerCo1” and “PartnerCo2”) of “Partnership” subscribe for voting redeemable retractable preferred shares...
18 March 2004 Internal T.I. 2004-0055311I7 - SAR Amendment to Stock Option Plan
Under the employee stock option plan, optionees had the right to elect to receive cash (the "Put"), subject to a redacted right of the employer to...
25 January 2002 External T.I. 2001-0112985 - EBP
Would s. 7 apply to an employee benefit plan ("EBP") thatacquires treasury shares of a corporation that is related to the employer who contributes...
7 December 2000 Internal T.I. 2000-0023207 F - OPTIONS D'ACHAT D'ACTIONS
Regarding stock option agreements that allow an employee to receive a cash payment rather than shares, the Directorate confirmed its position (as...
14 November 2000 External T.I. 2000-0048355 - STOCK OPTIONS EMPLOYER CASHOUT RIGHT
In response to a request for further clarification of the CRA position respecting a stock option plan where the employer can elect to pay the...
1999 Ruling 9902593 - STOCK OPTIONS - CASH-OUT RIGHT
Canadian employees of a Canadian subsidiary of a foreign parent had "subscription rights" to acquire unlisted ordinary shares of the foreign...
18 February 1999 Internal T.I. 9900816 - STOCK OPTIONS, 7(3)(B), U.S. PARENT
Where Canadian employees of a Canadian corporation are eligible to participate in an employee stock option plan of an indirect U.S....
Income Tax Technical News, No. 7, 21 February 1996 (cancelled)
Where under an employee stock option plan, the employee has the option to receive cash instead of shares, s. 7(3)(b) will not deny a deduction by...
1995 Institute of Chartered Accountants of Alberta Round Table, Q. 9 (9511740)
In RC's view, it is not appropriate for cash that an employee elects to receive in lieu of exercising a stock option to be eligible for the...
ATR-64 April 20, 1995 (cancelled)
Ruling that s. 7(3)(b) would not apply to an arrangement under which bonuses are paid by Y Co (a subsidiry of X Co, which is a public corportion)...
20 January 1994 T.I. 940075 HAA4735-1 [purchase of employer shares under EPSP]
If employer contributions under an employees profit sharing plan can be used to purchase treasury shares, s. 7 will apply and the employer will be...
92 C.R. - Q.47
In response to the decision in the Placer Dome case, RC is undertaking a complete review of its practices whereby treasury shares of the employer...
92 C.R. - Q.45
A payment by a Canadian subsidiary to its U.S. parent to compensate the U.S. parent for the participation of employees of the Canadian subsidiary...
4 May 1992 Tax Executive's Round Table, Question 10 (December 1992 Access Letter, p. 48)
S.7(3)(b) will not deny a deduction in computing the income of a corporation in respect of a cash payment which an employee elects to receive in...
21 November 1991 T.I. (Tax Window, No. 15, p. 16, ¶1672)
Where a Canadian subsidiary acquires shares of its U.S. parent for cash and the parent then issues the shares to Canadian executives of the...
Articles
Joint Committee, "Stock Option Changes Announced in 2019 Federal Budget", 14 May 2019 Submission of Joint Committee
The Joint Committee has provided comments on the 2019 Budget proposals to align Canada’s employee stock option rules with those in the U.S....
Dov Begun, "Equity Based Compensation and Stock Options", 2017 Annual CTF Conference draft paper
Employee savings plan with company match (pp. 19-20)
[S]ome corporations will match the amounts contributed by their employees through payroll...
MacKnight, "Pyrrhic Policy: Fixing the Phantom Loophole in Paragraph 7(3)(b)", 1993 Canadian Tax Journal, No. 3, p. 429.
Subsection 7(4) - Application of s. (1)
Cases
Hurd v. The Queen, 81 DTC 5140, [1981] CTC 209 (FCA)
Where an individual was granted a stock option by reason only of his employment by the grantor company, he will realize taxable employment income...
Administrative Policy
14 December 1992 Income Tax Severed Letter 912281A F - PROFESSIONS DÉPENDANTES\AVANTAGES EN VERTU D'UN EMPLOI
A Canadian employee who exercised an employee stock option after becoming a non-resident of Canada would be taxable in Canada on the benefit...
Articles
Tobias, "Taxing Benefits Realized by Former Canadian Residents", Taxation of Executive Compensation and Retirement, March 1994, p. 889
The author argues that Canada has no right to tax the benefit resulting from the exercise or realization of employee stock options on shares of...
Subsection 7(5) - Non-application of this section
Commentary
The provisions of s. 7 do not apply to a benefit conferred by an agreement if it was not "received in respect of, in the course of, or by virtue...
Cases
Scott v. The Queen, 94 DTC 6193, [1994] 1 CTC 330 (FCA)
The taxpayer, who was the Director and Secretary-Treasurer of a public corporation ("Night Hawk") and whose work as corporate secretary (for which...
Grohne v. The Queen, 89 DTC 5220, [1989] 1 CTC 434 (FCTD)
The taxpayer, along with other promoters of a company, entered into a "standby agreement" whereby they agreed to purchase shares of the company...
Busby v. The Queen, 86 DTC 6018, [1986] 1 CTC 147 (FCTD)
It was found that the taxpayer received stock options in two mining companies as a result of her close personal relationship with a German...
Bernstein v. MNR, 77 DTC 5187, [1977] CTC 328 (FCA)
The two beneficial shareholders of a company ("Highland") each received an option, and exercised that option, to purchase redeemable preference...
See Also
Del Grande v. The Queen, 93 DTC 133 (TCC)
In finding that any benefit received by the taxpayer as a result of the granting or exercise of options would have been received more by virtue of...
Administrative Policy
29 May 2007 Internal T.I. 2006-0217401I7 F - 110(1)d): Moment de la conclusion de la convention
Employees of Opco (Participants”) were granted stock options by Opco pursuant to “Grant Agreements” which specified the number of Options...
6 September 1994 External T.I. 9420525 - DIRECTOR-STOCK OPTIONS
Options are received by a director in respect of an employment where the options were granted to the director in consideration for the services to...
Subsection 7(6) - Sale to trustee for employees
Administrative Policy
14 November 2013 External T.I. 2013-0500641E5 - Subsections 7(6) and 153(1) - Withholding
Under an arrangement described in s. 7(6), does obligation to withhold tax rests with the corporation/employer or the s. 7(6) trust? CRA...
Articles
Elizabeth Boyd, Jeremy J. Herbert, "Trusts Holding Shares For Employees", draft 2023 CTF Annual Conference paper
S. 7(6) requirements (pp. 20-21)
- S. 7(6) deems a sale of securities by the s. 7(6) trust to the employee to be the same as a sale by the...
Subsection 7(8)
Administrative Policy
27 September 2016 Internal T.I. 2015-0572901I7 - Deferral of employment benefit under ss. 7(8)
A stock option benefit which was deferred under s. 7(8) on a stock option exercise before March 4, 2010 will be triggered on a disposition of the...
29 November 2004 External T.I. 2004-0105131E5 F - Avantages sur options - Diminution de valeur
Where s. 7(8) applies, how is the taxable benefit pursuant to s. 7(1)(a) determined where the share has declined in value after acquisition? CRA...
Subsection 7(9)
Articles
K.A. Siobhan Monaghan, "Amendments to Stock Option Rules - The New Deferral of Section 7 Benefits", Corporate Structures and Groups, Vol. VI, No. 4, p. 336.
Subsection 7(11)
Administrative Policy
19 February 2002 Internal T.I. 2001-0109657 - SPECIFIED VALUE BENEFIT DEFERRAL
Given that the 13 July 2001 comfort letter of Finance dealing with a reduction in the option price of employee options discusses only the...
Commentary
Ss. 7(1)(a) to (e) stipulate various rules that apply where a corporation has agreed to issue shares to an employee of it or another corporation...