Pubco (a Canadian public corporation) issues stock options (the “Options”) to certain employees with an exercise price not less than the FMV of the shares on the date of grant. Pubco accounts for the transactions surrounding the granting and exercise of an Option in accordance with Section 3870 of the CICA Handbook, such that it records a "stock-based compensation expense" when an Option is granted and when a share is issued on Option exercise. After indicating that s. 7(3)(b) precluded the recognition of such expenses under the Act, CRA stated:
[P]aragraph 143.3(3)(b) would not be applicable in this case in computing Pubco's income for a particular taxation year in which an Option was granted or exercised since no expense that would include an amount by reason of the granting of an Option or the issuance of a share of its capital stock would be deductible in computing its income for income tax purposes for that particular taxation year.