CRA first stated that Placer Dome, Chrysler and McAnulty “stand for the proposition that an arrangement to issue or sell shares need not be a detailed written contract to fall within the scope of section 7 or paragraph 110(1)(d), but nonetheless must create legally binding rights and enforceable obligations.”
Respecting options with FMV exercise prices granted by the corporate employer which expire on a pro-rata basis over a five-year period, and which are exercisable upon the corporation subsequently notifying of its decision on the number of options that each employee may exercise, the Directorate stated:
[A]n agreement to issue shares… would be considered to arise only at the time the notice is sent by the corporation to the employee and only in respect of the number of shares set out in the notice. Before that time, the employee had no enforceable right to acquire the shares and the corporation had no binding obligation to issue the shares. Consequently, the employee would not qualify for the paragraph 110(1)(d) deduction where the share price had increased from the date of the grant to the date of the notice.
A further situation discussed was where a trust is established by the employer to acquire and hold shares of the corporation for employees, but allocations among the employees are entirely at the discretion of the trustees – so that CRA would consider that there is no agreement to acquire the shares until such discretion is exercised.