On the day before a third party acquired all of the shares of a Canadian-controlled private corporation (CCPC), two directors of its directors exercised their stock options and then, on the acquisition date, the shares so acquired by them were purchased for cancellation by Opco so to reduce the number of issued and outstanding shares to the number agreed with the third party acquirer. In rejecting a suggestion that s. 248(28) should preclude the application of s. 84(3) to the purchase for cancellation of the directors’ shares since a benefit under s. 7(1) would have already been computed, CRA stated:
[I]t is our position that subsection 248(28) does not apply to a deemed dividend on the redemption, acquisition or cancellation by a corporation of shares of its capital stock for which a section 7 benefit is included in an employee's income. …[T]he section 7 benefit and the dividend computed under subsection 84(3) result from two different events, namely, the exercise of a stock option by the employee and the redemption, acquisition or cancellation of the shares by the corporation.