Section 7

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangement - Paragraph (k) para. (k) not available where RSUs are granted early in Year 1 and vest 36 months later 179
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(b) s. 7(3)(b) did not apply to recharge agreement reimbursements made to a parent that had the discretion to settle the RSUs in cash 293
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) reimbursement for RSUs issued by parent did not engage s. 15(1) or 246(1) 175

Paragraph 7(1)(a)

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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Financial Administration Act - Section 23 - Subsection 23(2) CRA drew reasonable distinction between stock option and stock purchase plan benefits 424

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 261 - Subsection 261(2) exercise price translated on exercise date 158

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...

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Words and Phrases
acquire

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...

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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...

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Scott v. The Queen, 91 DTC 5268 (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...

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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...

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Words and Phrases
value
Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Shares 113

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...

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Words and Phrases
agree agreement
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 246 - Subsection 246(1) 80

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...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 58

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1.5) - Paragraph 110(1.5)(a) purpose of satisfying exe4rcise price test 282
Tax Topics - Income Tax Act - Section 261 - Subsection 261(2) exercise price of employee stock options to be translated at the exercise-date spot rate 115

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...

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Williams v. The Queen, 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)...

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Words and Phrases
acquire

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...

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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...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Substance 81

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...

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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...

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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...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency 26

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(b) no s. 7(3)(b) prohibition where at employer’s option to settle PSPs in cash or in shares 250
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Employee Benefit Plan custodial PSP arrangement was an EBP 190
Tax Topics - Income Tax Act - Section 32.1 - Subsection 32.1(1) payments made by Canco to parent for the value of parent shares distributed by parent-funded EBP to Canco employees were not deductible under s. 32.1 269
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose recharge payments made for employees participating in parent-administered PSP not deductible to extent they were employed by affiliates during vesting period 241
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) request for deduction not to be allowed if based on case decision rather than error 281

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g) 5-year earnings based earnout for sale of Holdco common shares by Opco to key employee 841
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Safe Income Determination Time safe income determination time for a subsequent contemplated dividend was immediately before that dividend 534
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) s. 85(1) rollover available on dirty s. 85 exchange 92
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c) utilization of safe income as earned through a contemplated succession of dividends of all the annual earnings 178

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...

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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...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Shares FMV of shares at time of stock option exercise determined by valuing earn-out clause in subsequent sales agreement 100

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangement - Paragraph (k) addition to RSU plan of dividend equivalent units to be cashed out not excluded 215

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...

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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...

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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...

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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...

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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...

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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...

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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...

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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....

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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...

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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,...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 128.1 - Subsection 128.1(1) stock option rights 64

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...

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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...

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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...

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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...

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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...

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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).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Shares 16

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%...

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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...

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86 C.R. - Q.64

a director is an employee for purposes of s. 7.

IT-113R4 "Benefits to Employees - Stock Options" 7 August 1996

6. ...The word "issue" means to deliver unissued shares of a corporation, including...for no monetary consideration. Therefore, section 7 applies...

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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...

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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...

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Words and Phrases
disposition

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...

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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,...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 180 - Subsection 180(3) deference to trial judges factual inferences even when based on agreed statement of facts 79

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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) JV company at arm's length with 50% shareholder 193

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...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 31
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition "otherwise disposed of" includes extinguishment on surrender 85

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition disposition of property to corporation even though property extinguished 45

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(a) no s. 69(1)(b) application to s. 7(1)(b) dispositions 393
Tax Topics - Income Tax Regulations - Regulation 100 - Subsection 100(1) - Employer Opco paid directors’ fees of Pubco parent as agent 146

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...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus 151

The Queen v. Huestis, 75 DTC 5393, [1975] CTC 560 (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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(b) deduction for the employer’s source deduction payment for s. 7 RSU benefits where that payment is funded by reducing the RSU shares issued 337

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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d.1) not available where share payment of in-the-money value 67
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d) no 110(1)(d) where share payment of in-the-money value 116

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...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date contingent amount included under s. 7(1)(b) cannot later be reversed 114

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.4) executives potentially avoid double taxation on a "bad" (offside s. 7(1.4)) stock option exchange 78

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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(b) use of employee bond to acquire foreign parent share at initial value 241
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) 245

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...

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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...

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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,...

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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....

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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...

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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...

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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...

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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...

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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...

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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...

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Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Options in-the-money value not reflective of option value 62

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...

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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...

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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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 70 - Subsection 70(2) 55

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d.01) s. 110(1)(d.01) deduction is unavailable for a s. 7(1)(e) benefit 238

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6.1) overview 141

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...

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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...

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Administrative Policy

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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1.01) - Paragraph 153(1.01)(b) withholding does not apply to s. 7(1.1) stock option benefits 121

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(a) s. 7 can govern bonuses paid in shares where discretion ceases prior to the issuance 266
Tax Topics - Income Tax Act - Section 84 - Subsection 84(1) - Paragraph 84(1)(b) PUC of shares issued in satisfaction of bonus equal to bonus amount 122

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(5) - Paragraph 248(5)(b) substituted property definition in s. 248(5)(b) does not apply for the purposes of s. 7(1.1) 122
Tax Topics - Statutory Interpretation - Interpretation/Definition Provisions deeming provision only engaged when the referenced term is used 64

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...

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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...

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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...

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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...

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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...

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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

APFF Financial Strategies and Instruments Roundtable, Q.7

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 39 - Subsection 39(4) s. 39(4) election can apply to both the dispositions occurring in connection with short sale transactions 169

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....

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(2.1) broker must immediately pay sales proceeds of the stock option shares directly to the charity 151

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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d.01) not identifying gifted shares under s. 7(1.31) could result in s. 110(1)(d.01) not being satisfied 174

Subsection 7(1.4) - Exchange of options

Administrative Policy

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”...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Distribution prior drop-down of assets to Newco/split of DC manager's business/CEC proration/replacement option issuance as boot 1177
Tax Topics - Income Tax Act - Section 86 - Subsection 86(1) new common shares with same attributes as old subject to rights of new special shares/pro rata PUC 164
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(d) proration of CEC preliminary to butterfly 156
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition splitting of fee for management of 2 divisions not a disposition of contract 145

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(b) deduction for "amount...paid to acquire…rights" does not include value of old exchanged options 217

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 100 - Subsection 100(2.1) s. 100(2.1) applies to non-qualifying amalgamation 64
Tax Topics - Income Tax Act - Section 111 - Subsection 111(12) application following amalgamation 113
Tax Topics - Income Tax Act - Section 116 - Subsection 116(1) deemed tcp following amalgamation 167
Tax Topics - Income Tax Act - Section 13 - Subsection 13(5.1) continuity of s. 13(5.1) on amalgamation 132
Tax Topics - Income Tax Act - Section 165 - Subsection 165(1) Amalco can continue objection and receive refunds 157
Tax Topics - Income Tax Act - Section 169 Amalco can continue objection 103
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(n) reserve after amalgamation 62
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Shareholder shareholder need not hold shares 88
Tax Topics - Income Tax Act - Section 251 - Subsection 251(3.1) deemed non-arm's length relationship on amalgamation 172
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(b) related party, majority and 50% group exceptions 495
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(iii) reserve after amalgamation 62
Tax Topics - Income Tax Act - Section 66.7 - Subsection 66.7(7) successoring where non-wholly owned amalgamation 109
Tax Topics - Income Tax Act - Section 69 - Subsection 69(13) no disposition of predecessor property on general principles 113
Tax Topics - Income Tax Act - Section 80.01 - Subsection 80.01(3) non-87 amalgamation/no FX gain 165
Tax Topics - Income Tax Act - Section 84 - Subsection 84(3) no deemed dividend to dissenter on amalgamation 87
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) election filing by Amalco 109
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1.1) s. 87(1.1) qualifies for all s. 87 purposes 66
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1.2) successoring where non-wholly owned amalgamation 109
Tax Topics - Income Tax Act - Section 87 - Subsection 87(10) deemed listing of temporary Amalco shares 120
Tax Topics - Income Tax Act - Section 87 - Subsection 87(11) gain if high PUC is sub shares 55
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1) presumptive satisfaction of s. 87(1)(a)/dissent and squeeze-outs onside 297
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(a) new corp/deemed year end coinciding or not with acquisition of control 758
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(b) Amalco must follow predecessor's valuation method subject to truer picture doctrine 64
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(c) reserve after amalgamation 113
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(d) cost amount carryover 149
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(e.1) s. 100(2.1) applies to non-qualifying amalgamation 64
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(o) no continuity rule for non-security options 139
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(q) pre-amalgamation services 106
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2.11) loss-carry back to parent 169
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2.1) dovetailing with s. 88(1.1) 44
Tax Topics - Income Tax Act - Section 87 - Subsection 87(3.1) 346
Tax Topics - Income Tax Act - Section 87 - Subsection 87(3) PUC shifts 189
Tax Topics - Income Tax Act - Section 87 - Subsection 87(4) fractional share cash/ACB or value shift/implied non-recognition for predecessor shares 281
Tax Topics - Income Tax Act - Section 87 - Subsection 87(7) dovetailing with s. 78 and 112(12) 191
Tax Topics - Income Tax Act - Section 87 - Subsection 87(9) allocation of s. 87(9)(c)(ii) excess as parent chooses 230
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(d) late designation 122
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1.1) dovetailing with s. 87(2.1) 62
Tax Topics - Income Tax Act - Section 98 - Subsection 98(5) partnership dissolution on amalgamation 137
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.2) deemed non-arm's length relationship on amalgamation 467
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2) deemed non-arm's length relationship on amalgamation 371
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(14) class continuity on non-arm's length amalgamation 327
Tax Topics - Income Tax Regulations - Regulation 8503 - Subsection 8503(3) - Paragraph 8503(3)(b) pre-amalgamation services 106
Tax Topics - Income Tax Act - Section 249 - Subsection 249(3) 136
Tax Topics - Income Tax Act - Section 22 - Subsection 22(1) 179

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....

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.5) s. 7(1.5) rollover where employees exchanged specific s. 7(1.1) shares for shares of grandparent, even though they also received cash and PUC distribution 454
Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(j) ACB increased by s. 7(1) benefit that had not yet been triggered due to s. 7(1.5) rollover 276
Tax Topics - Income Tax Act - Section 116 - Subsection 116(1) s. 116 certificate required even for shares disposed of under s. 7(1.5) rollover 283

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...

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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...

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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...

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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...

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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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(j) ACB increased by s. 7(1) benefit that had not yet been triggered due to s. 7(1.5) rollover 276
Tax Topics - Income Tax Act - Section 116 - Subsection 116(1) s. 116 certificate required even for shares disposed of under s. 7(1.5) rollover 283
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.4) non-resident ex-employees will be required to recognize s. 7 benefit deferred by s. 7(1.5) when they dispose of the shares acquired in exchange 148

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,...

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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...

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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...

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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...

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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...

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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...

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Administrative Policy

8 October 2021 APFF Roundtable, Q.1

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Employee Benefit Plan the EBP rather than s. 7 rules applied to a share plan for employees where share distributions were discretionary 404

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(b) discretionary share bonus plans have no s. 7 agreement unless there is delayed vesting 371
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d) no agreement to issue shares if vesting in employer's discretion 263

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...

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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...

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Articles

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)

See Also

Agence du revenu du Québec v. Des Groseillers, 2021 QCCA 906, leave granted 24 March 2022

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) s. 69(1)(b) deems FMV proceeds for an employee stock option gift for s. 7 purposes 212

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(b) no s. 7(1)(b) application to option cash-out amount assignments 514
Tax Topics - Income Tax Regulations - Regulation 100 - Subsection 100(1) - Employer Opco paid directors’ fees of Pubco parent as agent 146

Rogers Estate v. The Queen, 2015 DTC 1029 [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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) cash surrender of employee stock options for their value was not shareholder benefit 124
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(a) capital gain can arise from property which is not capital property 271
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) exercise of stock option surrender plan for FMV was not "remuneration" 121
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Options holding one's employee stock options until just before they expire is not typical of an adventure in the nature of trade 185

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. ...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251 - Subsection 251(2) - Paragraph 251(2)(a) separated wife was related 173
Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 45(2) may look at subsequent amendment to determine whether it changed the law 132
Tax Topics - Statutory Interpretation - Specific v. General Provisions stock option rules more specific than employee benefits 55

Ward v. The Queen, 98 DTC 2097 (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...

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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...

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Words and Phrases
agreed

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 84 - Subsection 84(1) - Paragraph 84(1)(b) PUC of shares issued in satisfaction of bonus equal to bonus amount 122
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.1) 7(1.1) applicable to non-discretionary bonus payable in shares 178

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...

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Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Employment Insurance Act - Section 5 - Subsection 5(2) - Paragraph 5(2)(b) employment by employees of partnership of corporations is treated as joint employment by those corporations 90

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...

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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...

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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...

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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...

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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...

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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...

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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...

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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....

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(b) non-deductibility of reimbursements by Cdn employer to US parent 78

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...

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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...

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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....

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See Also

Transalta Corporation v. The Queen, 2012 DTC 1106 [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...

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Words and Phrases
agree agreement

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangement - Paragraph (k) para. (k) not available where RSUs are granted early in Year 1 and vest 36 months later 179
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) reimbursement for RSUs issued by parent did not engage s. 15(1) or 246(1) 175
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) no agreement to issue shares under an RSU if the company can choose to settle in cash 139

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(b) employer's payment of source deductions arising on vesting of RSUs constituted a s. 7(1)(b) benefit 194

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(a) s. 7 rules do not apply to shares purchased through a trust 180
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Employee Benefit Plan custodial PSP arrangement was an EBP 190
Tax Topics - Income Tax Act - Section 32.1 - Subsection 32.1(1) payments made by Canco to parent for the value of parent shares distributed by parent-funded EBP to Canco employees were not deductible under s. 32.1 269
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose recharge payments made for employees participating in parent-administered PSP not deductible to extent they were employed by affiliates during vesting period 241
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) request for deduction not to be allowed if based on case decision rather than error 281

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...

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Words and Phrases
agreement
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d) no agreement to issue shares if vesting in employer's discretion 263
Tax Topics - Income Tax Act - Section 7 - Subsection 7(2) no agreement if allocation of shares in trustee's discretion 284

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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 143.3 - Subsection 143.3(3) - Paragraph 143.3(3)(b) s. 143.3(3)(b) inapplicable given prior application of s. 7(3)(b) 164

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...

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2005 Ruling 2005-0120771R3 - Stock option plan

The two equal partners (“PartnerCo1” and “PartnerCo2”) of “Partnership” subscribe for voting redeemable retractable preferred shares...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d) stock option rules apply to common shares tracking a closely-held partnership interest 197

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...

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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...

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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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(b) cash surrender of subscription rights for unlisted shares 266
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) 245

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....

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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...

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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...

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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)...

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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...

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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...

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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...

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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...

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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...

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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....

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d) suggestions on Budget version of s. 110(1)(d) limitations 339

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...

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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...

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Administrative Policy

14 December 1992 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...

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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...

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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...

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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...

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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...

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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...

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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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) not a shareholder benefit if option exercisable only while officer; obligation v. conferral 197
Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) majority shareholder not subject to the direction of the minority shareholder 65
Tax Topics - Statutory Interpretation - Specific v. General Provisions 81

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d) - Subparagraph 110(1)(d)(ii) - Clause 110(1)(d)(ii)(A) where options previously granted were not exercisable until an employer “Exercise Notice,” the stock option agreement was made at such notice time 190

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...

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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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) employer rather than s. 7(6) trust withholds 73

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...

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 73 - Subsection 73(1.01) - Paragraph 73(1.01)(b) s. 7(10) deferred gain is triggered on a s. 73 rollover 208

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...

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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...

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