S. 7(1.31) applies in relation to shares of a public corporation if a share of the corporation is acquired under an agreement described in s. 7(1), an identical share is disposed of within 30 days after that acquisition, no other identical shares are acquired or disposed of by the employee after that acquisition and before the disposition, and the employee makes the required designation. If s. 7(1.31) applies, the employee is permitted to designate the most recently acquired shares as the shares deemed to be disposed of.
CRA commented on an example. An employee who acquired 10 common shares of the public-company employer, was also issued, for no consideration (other than services rendered), 10 restricted stock units (RSUs) of the employer under an agreement to which s. 7(1) applied. When the 10 RSUs vest, the employee is issued 10 common shares of the employer (the “RSU Shares”) with a fair market value of $10 per share. Immediately thereafter, the employer directs a broker to dispose of 5 RSU Shares, and the $50 proceeds are utilized by the employer to satisfy its withholding tax obligation.
CRA indicated that provided the s. 7(1.31) conditions were satisfied, the deemed cost of the RSU shares under s. 53(1)(j), equal to the taxable benefit of $100, would not be pooled with the lower ACB of the historical shares by virtue of s. 47(3), so that no gain would be realized on the sale of half of the RSU shares.