2017-0709811I7 Withholding on CCPC stock option benefit

Principal Issues: Whether subsection 153(1.01) applies to a stock option benefit under paragraph 7(1)(a) in circumstances where that paragraph is required to be read in accordance with subsection 7(1.1)

Position: No.

Reasons: Exception in paragraph 153(1.01)(b).

Author: Pietrow, Victor
Section: 7(1)(a); 7(1.1); 153(1)(a); 153(1.01)(b)

                                                                                                                              January 3, 2018

Daniel Desmueles, Program Officer                                                                     HEADQUARTERS
Business Programs Support Section                                                                    Income Tax Rulings
Call Centre Services Directorate                                                                          Directorate
Assessment Benefit and Service Branch                                                              V. Pietrow

                                                                                                                             2017-070981

SUBJECT: Withholding on CCPC stock option benefit

We are writing in response to your email of June 13, 2017 in which you ask whether the withholding requirements under subsection 153(1) of the Income Tax Act (the “Act”) apply to an employee stock option benefit issued by a Canadian-controlled private corporation (CCPC).

In your email, you described the following situation: Employerco (a CCPC) agreed to issue shares of its capital stock to one of its employees by way of a stock option. Immediately after the agreement was made, the employee was dealing at arm’s length with Employerco. The employee subsequently exercised the stock option and thereby acquired the shares. The employee later disposed of the shares.

In this situation, an amount is deemed by paragraph 7(1)(a) of the Act to have been received by the employee as a benefit because of the employee’s employment. However, because Employerco is a CCPC with which the employee dealt at arm’s length, subsection 7(1.1) provides that this amount is not considered to be received by the employee until the taxation year in which the shares are disposed of by the employee.

Subsection 153(1.01) of the Act generally ensures that an amount deemed to be received as a benefit under paragraph 7(1)(a) is subject to the withholding and remittance requirements in subsection 153(1) as if it were a bonus.

However, paragraph 153(1.01)(b) excludes from these requirements any amount deemed to have been received in a taxation year as a benefit because of a disposition of securities to which subsection 7(1.1) applies. Accordingly, no withholding would be required under subsection 153(1) in the situation described above.

We trust our comments will be of assistance.

Yours truly,

Dave Wurtele
Acting Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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