2013-0483471E5 Paragraph 7(1)(e)-subsection 110(1.1) Election

Principal Issues: Whether an election under subsection 110(1.1) may be made by an employer in circumstances where paragraph 7(1)(e) applies after March 4, 2010?

Position: Yes.

Reasons: The CRA will accept such elections on an administrative basis.

Author: Allen, Gary
Section: 7(1)(e), 110(1)(d), 110(1.1)

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                                                                                                                                             2013-048347      
                                                                                                                                             G. Allen

May 13, 2015

Dear XXXXXXXXXX

Re:  Paragraph 7(1)(e) and subsection 110(1.1) election

We are writing in response to your emails and telephone conversations (XXXXXXXXXX/Allen) wherein you requested our comments concerning whether an employer could make the election under subsection 110(1.1) of the Income Tax Act (the “Act”) in a situation where paragraph 7(1)(e) of the Act deems a deceased employee to have received an employment benefit in the year of death.

We understand that your enquiry is further to the positions expressed in our documents 2011-0423441E5 and 2009-0327221I7.  In those documents, we indicated that, as a result of the amendment to subparagraph 110(1)(d)(i) of the Act that requires a taxpayer to acquire shares under a stock option agreement, a deduction pursuant to paragraph 110(1)(d) of the Act may not be available in circumstances where paragraph 7(1)(e) of the Act applies after March 4, 2010.

Our Comments

The Canada Revenue Agency accepts, on an administrative basis, that an election can be made pursuant to subsection 110(1.1) of the Act in order to allow a deduction pursuant to paragraph 110(1)(d) of the Act in circumstances where paragraph 7(1)(e) of the Act applies and the other conditions of paragraph 110(1)(d) of the Act are met (such that a deduction could have been claimed under paragraph 110(1)(d) of the Act as it read prior to the 2010 amendment referred to above). 

We trust that our comments will be of assistance. 

Lita Krantz, CPA, CA
for Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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