A stock option plan also includes a cashless exercise provision that permits an employee to elect, in lieu of paying the exercise price and acquiring the optioned shares, to receive the in-the-money value of the options in the form of treasury shares. Can the employee remains eligible for the s. 110(1)(d) deduction by filing an election under s. 110(1.1). In responding affirmatively, CRA stated:
…[T]he issued shares represent consideration for the employee surrendering their rights under the agreement. Consequently, the requirement [in s. 110(1)(d) absent a s. 110(1.1) election] that the underlying shares be acquired is not met.
However … the filing of a valid election pursuant to subsection 110(1.1) would enable the employee in this situation to claim a deduction under paragraph 110(1)(d) provided that all of the other conditions of this paragraph are met.
…[T]he mechanism in subsection 110(1.1) is available to an employer regardless of whether the employer is already denied a deduction for the stock option expense because of another provision of the Act (such as paragraph 7(3)(b) or 18(1)(b))… .