In order to effect s. 153(1.01) withholding, certain employers have some shares redeemed immediately following the exercise of employee stock options in order to raise the requisite source deduction amount – and to accomplish this, the stock option agreements are amended to give the employer the right to redeem the shares in part. Would granting a redemption right to the employer result in the shares ceasing to be prescribed shares? CRA responded:
[A] share issued under a stock option agreement that grants the employer a right to purchase for cancellation the shares issued under that agreement would not be a prescribed share by virtue of ITR subparagraph 6204(1)(a)(iv) and paragraph 6204(1)(b).