Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether 7(1)(b) applies where an employee has option to take cash or shares under a SAR.
Position:
Yes, if the SAR is an agreement as contemplated by subsection 7(1).
Reasons:
Meets the requirements of section 7.
960218
XXXXXXXXXX P. Spice
Attention: XXXXXXXXXX
April 11, 1996
Re: Paragraph 7(1)(b) of the Income Tax Act (the "Act")
This is in reply to your letter of January 11, 1996, in which you ask us to confirm our position concerning share appreciation rights which may be realized at the employee's option for either shares or cash. You ask whether paragraph 7(1)(b) of the Act or the salary deferral arrangement rules would be applicable.
The Department's position concerning the treatment of share appreciation rights was stated at the 1988 Canadian Tax Conference in answer to question 26 and is also covered in ATR-45. If the share appreciation rights plan or arrangement constitutes an agreement by the employer to sell or issue shares as contemplated by subsection 7(1) of the Act, then the Department's recent announcement at the 1995 Canadian Tax Conference concerning the application of paragraph 7(1)(b) where the employee exercises a right to receive cash in lieu of shares applies equally.
To summarize, where the employee is entitled to realize share appreciation rights, may elect to receive cash instead of shares, and does so elect, paragraph 7(1)(b) of the Act will apply to tax the benefit in the employee's hands if the share appreciation rights arrangement is the employer's agreement to sell or issue shares.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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