In accordance with the terms of the employment contract, a Canadian-controlled private corporation pays a bonus to an employee which is payable in shares. Will the share issuance be governed by s. 7, particularly s. 7(1.1)? What if the employee has the choice to be paid the sum in cash or shares? CRA responded:
[I]n the situation where an employer establishes an arrangement under which it undertakes to award a bonus based on the employee reaching certain measurable performance objectives and the employer agrees to pay this bonus in shares, then this arrangement could be an agreement contemplated by section 7. …
[I]f an employer establishes an arrangement under which it has full discretion to award a bonus or has full discretion as to the mode of payment of this bonus (in shares or in cash), [this] discretion… would ensure that it could not be an agreement for purposes of section 7… .
It is possible that an arrangement which is not initially within section 7 due to the employer's discretion as to whether or not to grant shares could become an agreement in which section 7 applies at the time the employer undertakes to issue shares. This could be the case [where]…[a]fter the first year, the employer exercises its discretion and sets the amount of the bonus at 75 shares, which is payable in shares at the end of the year if the employee is still employed by the employer. …
[T]he choice of the employee…does not preclude an undertaking from being an agreement to issue shares.