Where the employer files a valid election under s. 110(1.1), is the stock option deduction still available where the employee was issued treasury shares having a value equal to the in-the-money value of the options upon surrender, despite there being no deduction for the employer to “give up” as contemplated by s. 110(1.1)? CRA stated:
The CRA has reviewed the application of subsection 110(1.1) to situations where the employer is already denied a deduction for the stock option expense either because of another provision of the Act (such as paragraph 7(3)(b) or 18(1)(b)) or because the employer is not subject to Canadian taxation. We have determined that there is nothing in subsection 110(1.1) that restricts its application to instances when the employer is otherwise entitled to a deduction. Therefore we can confirm that the mechanism in subsection 110(1.1) would be available to an employer in these situations to ensure the availability of the stock option deduction.