913266
R.B. Day
(613) 957-2136
24(1)
January 21, 1992
Dear 19(1):
Re: "Amount Payable" Subparagraph 110(1)(d)(iii) of the Income Tax Act ( the "Act")
We are writing in reply to your letter of November 20, 1991, wherein you requested clarification of the comments set out in our letter of November 20, 1991.
Specifically, you have asked us to clarify whether subparagraph 110(1)(d)(iii) of the Act would apply in the situation where one of several possible exercise prices is less than the fair market value of the underlying shares at the time the option is granted but where the actual exercise price is not less than the fair market value of the underlying share at the time the option was granted. For example, assuming that the exercise price is computed pursuant to a formula, such that the exercise price for the share could be either $12, $10 or $8, and the fair market value of the share at the time the option was granted, is $10, would subparagraph 110(1)(d)(iii) of the Act apply?
Our Comments
In the example set out above, it is our opinion that where the actual exercise price for the share was either $12 or $10, subparagraph 110(1)(d)(iii) of the Act would apply. However, if the exercise price for the share was $8, subparagraph 110(1)(d)(iii) of the Act would not apply. In other words, the deduction under subparagraph 110(1)(d)(iii) of the Act will be available to a taxpayer where the actual exercise price of the share is equal to or greater than the fair market value of the share at the time the option is granted.
We trust that the above comments provide you with the required clarification.
Yours truly,
J. Szeszyckifor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch