Would the taxpayer be required to file an s. 7(1.31) election if the taxpayer were entitled to an s. 110(1)(d.01) deduction by virtue of s. 110(2.1)? CRA responded:
[T]he designation provided by subsection 7(1.31) may be necessary to permit a deduction under paragraph 110(1)(d.01) by virtue of subsection 110(2.1). For example, assume a scenario where, before the exercise of an employee stock option, a taxpayer holds identical securities to those acquired under the option. If, in exercising the option, the taxpayer directs the disposition of the acquired securities and the donation of the proceeds as provided for in subsection 110(2.1), the taxpayer can designate the acquired securities as the securities disposed of in order to claim a deduction under paragraph 110(1)(d.01) by virtue of subsection 110(2.1). Absent the designation under subsection 7(1.31), subsection 7(1.3) would generally apply to deem identical properties to be disposed of in the order in which they were acquired.