Dear Sirs:
Re: Combined Share Appreciation Rights and Stock Option Plan
This in response to your letter of December 3, 1990 requesting our opinion as to how section 7 of the Income Tax Act ("the Act") would apply in the factual situation described.
24(1)
As indicated in Information Circular 70-6R2, since the enquiry deals with a specific proposed transaction it would be more appropriate to reply in the form of an advance ruling. However, we do offer the following general comments.
The plan, as described, would appear to correspond to the arrangement described in the preamble to subsection 7(3). Paragraph 7(3)(a) deems the employee to receive a benefit from this arrangement only through section 7. In that case, the Canco payments to its employees would be considered to be benefits as described in paragraph 7(1)(a). Also, paragraph 7(3)(b) would deny a deduction to Canco for such payments.
The plan also appears to correspond with the type of agreement described in subparagraph 110(1)d)(i), therefore, providing it also meets the conditions described in subparagraphs 110(1)(d)(ii) to )(iv), employees receiving benefits under subsection 7(1) will be permitted the deduction in paragraph 110(1)(d).
While we hope our comments are of assistance to you they are an expression of an opinion only and, therefore, are not binding on the Department in a specific situation.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate