2015-0574481E5 Advantage tax and employee-owned securities

Principal Issues: Whether positions adopted in 2009-0320311I7 and 2009-0323391R3 remain valid in light of the amendment to subparagraph (b)(i) of the advantage definition that replaced the language “open market” with “normal commercial or investment context”.

Position: Yes.

Reasons: The amendment was simply clarifying in nature and did not alter the fundamental scope of the provision.

Author: Wurtele, Dave
Section: 207.01(1) "advantage”

XXXXXXXXXX                                                                                                                                            2015-057448
                                                                                                                                                                    D. Wurtele

May 28, 2015

Dear XXXXXXXXXX:

Re: Advantage tax and employee-owned securities

This is in reply to your email of March 7, 2015 in which you ask whether employees may hold securities of their employer in their registered retirement savings plan (RRSP) or tax-free savings account (TFSA), without the holding of such securities being considered an “advantage” pursuant to subparagraph (b)(i) of the definition “advantage” in subsection 207.01(1) of the Income Tax Act (the “Act”). In particular, you ask whether the views we expressed in 2009-0320311I7 and 2009-0323391R3 have changed in light of the amendment to that subparagraph that replaced the language “open market” with “normal commercial or investment context”.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

We can confirm it remains our position that the transactions that were the subject of the above-referenced files (also discussed in Income Tax Technical News No. 44 under the heading Key Employee Tax-Free Savings Account) would give rise to an advantage under the amended language. Whether this provision, or the complementary provision in subparagraph (b)(ii), would apply in other situations where employees hold securities of their employer is a question of fact that would require a review of all of the circumstances.

In our view the amendment was simply clarifying in nature and did not alter the fundamental scope of the provision. This is consistent with the June 6, 2012 comfort letter from the Department of Finance in which the amendment was first proposed. In particular, this letter confirmed that the amendment was not intended to accommodate estate freeze transactions.

We trust our comments will be of assistance.

Yours truly,

Mary Pat Baldwin, CPA, CA
for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2015

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2015