23 July 1990 Ministerial Correspondence 901034 F - Option to Acquire Shares

By services, 18 January, 2022
Official title
Option to Acquire Shares
Language
French
CRA tags
49(1)
Document number
Citation name
901034
Severed letter type
Ministerial Correspondence
d7 import status
Drupal 7 entity type
Node
Drupal 7 entity ID
631445
Extra import data
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Main text
  901034
                                          A. Payette
                                          (613) 957-8974
 
Attention  19(1)
 
July 23, 1990


Dear Sirs:Re:   Option to acquire sharesWe are writing in response to your letter of June 1, 1990 in which you requested our opinion regarding the tax treatment of the following hypothetical fact situation:Dear Sirs:Re:   Option to acquire sharesWe are writing in response to your letter of June 1, 1990 in which you requested our opinion regarding the tax treatment of the following hypothetical fact situation: 

1.       An individual who is a share holder of a private corporation grants an option to another person to acquire shares of the private corporation held by the individual.

2.       The individual subsequently repurchases the option from the taxpayer.

You have requested our opinion as to whether the amount paid by the grantor of an option the subject matter of which is shares of a private corporation (which are capital property to the grantor) results in a capital loss of the grantor or an increase in the adjusted cost base of the property to which the option pertains.
Our comments

1)         We agree that provided the property to which the option pertains is a capital property, the initial granting of  the option by the individual is subject to the provisions of subsection 49(1).  That is, any consideration received  for the granting of the option is a capital gain to the      individual.

2)        It is our view that the tax consequences of the subsequent repurchase by the individual who initially granted the option should be governed by paragraph 3 ofInterpretation bulletin IT-403R which states that "where the grantor of  any option purchases it back from the grantee and they are dealing at arm's length, the Department takes the position that the adjusted cost base of the property to the grantor is generally increased by the amount of the purchase price of the option from the grantee...", provided that the shares under the option are shares of a private      corporation.

These opinions are our best interpretation of the law as it applies generally.  They may, however, not always be appropriate in the circumstances of a particular case and, a stated in paragraph 24 of Information circular 70-6R, they are not binding on this Department.
Yours truly,
 
for Acting Director
Bilingual Services and Resource
  Industries Division
Rulings Directorate