The employment benefit associated with the exercise by Taxpayer A of the stock options was deferred under s. 7(8) (since repealed). Taxpayer A is transferring the shares to Taxpayer B as part of the settlement of rights arising out of their marriage. What are the consequences? The Directorate responded:
Although subsection 7(8) was repealed in 2010 the deferral of the employment benefit continues to be permitted, for stock options exercised on or before March 4, 2010 4:00 P.M.(EST), until either the employee disposes of the share, dies, or becomes a non-resident. …[W]hen Taxpayer A transfers the shares to Taxpayer B…Taxpayer A will be required to include the deferred employment benefit in income in the year of the disposition. …
[W]here capital property is transferred by Taxpayer A to Taxpayer B in settlement of rights arising out of their marriage or common-law partnership (see paragraph 73(1.01)(b) and subsection 73(1)), Taxpayer A will be deemed to have disposed of the shares for proceeds equal to Taxpayer A’s adjusted cost base (ACB) of the shares immediately before the disposition. Pursuant to paragraph 53(1)(j) the ACB of the shares will be increased by the amount of any benefit deemed to have been received under paragraph 7(1)(a)….