11 April 2001 External T.I. 2001-0073225 - REPAYMENT OF STOCK OPTION BENEFIT

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: Can an employee claim a deduction where, pursuant to the terms of a stock option agreement, he is required to repay to his employer corporation an amount equal to the taxable benefit under paragraph 7(1)(a) which was triggered upon the acquisition of shares under the stock option agreement?

Position: No.

Reasons: There is no provision in the Act to allow a deduction either for the amount repaid or the amount repaid less the 110(1)(d) deduction.

XXXXXXXXXX 			2000-007322
G. Kauppinen
April 11, 2001

Dear XXXXXXXXXX:

Re: Repayment of Stock Option Benefit

This is in reply to your letter dated March 5, 2001 regarding the above-noted subject.

You ask whether subsection 5(2) of the Income Tax Act ("Act") will apply to allow a deduction to a taxpayer where the taxpayer, pursuant to the terms of a stock option agreement (the "Agreement"), is required to repay to his or her employer ("Employer") an amount equal to the amount included in computing income on the exercise of a stock option under the Agreement. The requirement for the repayment arose because the taxpayer ceased employment with the Employer and became employed with a competitor of the Employer within a certain time subsequent to his or her exercise of a stock option under the Agreement.

Our Comments

Opinions concerning proposed transactions involving specific taxpayers should only be provided in response to a request for an advance income tax ruling. Your client should be advised that an advance income tax ruling will be provided if a request is submitted in accordance with the procedures detailed in Information Circular 70-6R4 dated January 29, 2001.

We confirm that subsection 5(2) will not apply in the situation described above as there is no provision of the Act to allow a deduction for any amount (including the amount of the benefit taxable to the taxpayer pursuant to paragraph 7(1)(a) of the Act or that amount less the deduction allowed to the taxpayer pursuant to paragraph 110(1)(d) of the Act) which could create a loss from employment. ( Note that a loss pursuant to subsection 5(2) could only occur if the deductions available in computing income from employment were greater than the taxpayer's positive sources of employment income in a taxation year as computed under subsection 5(1) and sections 6 and 7). As you have pointed out, subsection 8(12) could not have application since there is no trust in the assumed scenario.

For greater certainty, in our view, there is no deduction available under the Act with respect to some or all of the amount described above required to be repaid to the Employer by the taxpayer.

We trust our comments are of assistance.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch