F.L. Workman 613-593-6201
Attention: XXXX
September 10, 1981
Dear Sirs:
This is in reply to your letter of May 7, 1981 in respect of certain rights under a contract to acquire shares in a corporation which you have referred to as the "disability option" and the "book value option."
Where a person has a right under a contract, either immediately or in the future, and either absolutely or contingently, to acquire shares in a corporation, the provisions of paragraph 251(5)(b) of the Income Tax Act (the Act) deem that person to be in the same position in relation to the control of the corporation as he would be if he actually owned such shares. Although the wording in paragraph 251(5)(b) of the Act may be broad enough to include almost any "buy-sell" agreement, it is the Department's practice not to apply this paragraph unless the parties to the agreement clearly have either a right or an obligation to buy or sell, as the case may be.
We confirm that where, under a contract, a person has a right to acquire a share in a corporation and another person has an obligation to sell only upon the happening of an uncertain future event, such as the bankruptcy of one of the parties to the contract or the physical or mental incapacity of one of the parties to the contract, the provisions of paragraph 251(5)(b) of the Act would generally not be applied. However, the application of paragraph 251(5)(b) of the Act in any particular situation is dependent upon the relevant facts of the situation. Accordingly, we are unable to express a specific opinion on the examples referred to in your letter of May 7, 1981.
We trust our comments are of assistance to you.
Yours truly,
for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch