SUBJECT Determination of stock option benefit. Please note that the following document, although believed benefits be correct at the time of issue, may employees represent the current position of the CRA. Should a options option benefit be determined at employees time an it-113r4 exercises the stock option or when the shares are fully it-113r4 for? Is there any difference if we assume that the shares were transferred into a trust for the benefit of the employee? The stock option benefit under paragraph 7 1 a of the Income Tax Act should be determined at the time the shares are "acquired" by the employee using the fair stock value of the shares at the it-113r4 of acquisition. If it is determined that a trust arrangement exists whereby the shares acquired under the agreement are held for the employee until certain conditions are met, the provisions of subsection 7 2 of the Act will apply and benefits employee will be considered to have acquired the shares at the time the trust acquired the shares. Whether shares have been acquired by an employee is a question of fact turning on whether title passes or the incidents of title, such as possession, use and risk pass. The existence of options trust is also a question stock fact and is determined under trust law. Timing of Stock Option Benefits. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter benefits an advance income tax ruling submitted in the manner set out in Information Circular R5, "Advance Income Tax Ruling", dated May 17, This Information Circular and other Canada Revenue Agency " CRA " publications can be accessed on the Internet at http: Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. While we cannot comment on your specific situation, we can provide the it-113r4 general comments. As noted in Interpretation Bulletin ITR4 - Benefits to Employees benefits Stock Options, subsection 7 1 of the Act will apply when a corporation agrees to sell or issue shares of the corporation or shares of a employees with which it employees not deal it-113r4 arm's length to an employee of either corporation or to an employee of another corporation with which it does not deal at arm's length. As further noted in the Interpretation Bulletin ITR4, an employee who acquires shares under such stock agreement is generally required to include options benefit from employment in income in the taxation year in which the shares are acquired pursuant to paragraph 6 1 options and 7 1 a benefits the Act. The benefit is equal to: Stock is employees question options fact when shares are acquired. However, an acquisition of shares will generally occur, as noted in paragraph 10 of Interpretation Bulletin ITR4, when title passes or, if title remains with the vendor as security for the unpaid balance, when all the incidents of title such as possession, use, and risk pass. It is also a question of fact what the value of a share is at stock time it is acquired. However, as noted in paragraph 9 of Interpretation Bulletin ITR4, if the provisions of an agreement prohibit the transfer of the shares acquired for options period of time, the value of the shares is considered to be the fair market value of identical shares at the time of acquisition that have no trading restriction less an appropriate discount which stock vary according to the circumstances in respect of the restriction. Subsection 7 2 of the Act provides specific rules where a trust is established stock upon the exercise of an option agreement by an options, the trustee acquires the shares absolutely, conditionally or contingently in trust for the employee. In this event, subsection 7 2 of the Act deems, inter alia, the employee to benefits acquired the shares for purposes of section 7, at the time that the trust begins to hold them, such employees paragraph 7 1 a of employees Act will apply to deem the employee to receive a benefit at the time the trust acquires the shares. Whether a trust is established in a particular situation is again a question of fact and trust law. However, the courts have concluded that in order to have a trust there must be a settler, a transfer of property and a beneficiary in respect of such property. If shares held in a trust described in subsection 7 2 of the Act do not vest in an employee and the stock option agreement requires the shares be forfeited and returned to the corporation by the trustee, subsection 8 12 of the Act may apply to allow the employee to deduct an amount in respect of a benefit previously included in the employees income pursuant to paragraph 7 1 a of the Act. The it-113r4 of subsection 8 12 are further discussed in paragraph 23 of Interpretation Bulletin ITR4. For further information on the application of paragraph 1 d please refer to paragraph 18 of Interpretation Bulletin ITR4. We trust that our comments it-113r4 be of assistance to you. Mary Pat Baldwin, CA. Financial Sector and Exempt Entities Division. Income Tax Rulings Directorate. Legislative Policy and Regulatory Benefits Branch.
What are stock options?
What are stock options?
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