Accounting for employee stock options canada


The Canada Revenue Agency CRA has updated its position on employer deductions for share plans that settle in newly issued stock. The CRA now accepts that an employer should be entitled to a deduction if accounting for employee stock options canada The QueenTCC 86, in which Transalta had a performance share unit plan that was entirely discretionary, in terms of both settlement and whether any amount would be ultimately payable.

Accounting for employee stock options canada CRA technical interpretation released on April 12,signals that accounting for employee stock options canada an employer has the right to choose between settling an award in cash or shares, no agreement to issue shares exists and, therefore, paragraph 7 3 b should not apply to deny accounting for employee stock options canada corporate deduction.

It further states that a discretionary arrangement is not an agreement for the purposes of section 7. Except hot forex best broker traderush binary options youtube forex aed to aud the SAR grants, the CRA found that section 7 applied to all of the awards because they created legally-binding obligations to issue shares by USCo assuming that the conditions for vesting were met.

The CRA states that the SAR awards provided a right to receive a payment in cash or shares or a combination thereof at the discretion of the plan sponsor.

If the amounts are otherwise deductible under normal corporate tax principles and no legally enforceable rights to shares are created, Canadian employers should be able to claim a deduction going forward. As well, they should consider amending previously filed tax returns. It is important to ensure that an employer or payor of share-based accounting for employee stock options canada does not create a unilateral contract by committing to issuing shares after an award has been granted but before settlement.

Employers should ensure that the share plan is not an SDA, which can trigger an immediate employee income inclusion if deferrals of compensation do not meet specific exemptions.

It is uncertain whether the CRA will accept that there is no section 7 agreement when an employer has the discretion to issue previously unissued shares or shares purchased on the market. The CRA has permitted market-purchased share plans to be deductible and found them to fall outside section 7, so it would be consistent for the CRA to permit a deduction when there is a choice between previously unissued shares and market-purchased shares, i.

An arrangement that always results in shares being issued would typically preserve certain desirable accounting outcomes, but it remains to be seen whether this type of arrangement would be acceptable to the CRA. If a corporate parent charges a Canadian subsidiary the fair value amortized over the vesting period and accounts for the compensation cost on an equity i. When shares are issued, there would be no change to the expense at settlement. It is possible that the chargeback to Canada, based on the accounting expense, could exceed the fair market value of the shares eventually settled.

Perhaps they should be considered contributions to an employee benefit plan, in which case they would not be deductible until the awards are settled. Employee benefit plan treatment may also provide a statutory basis for a deduction of the full amount of the charge in a previous year, even if the share value has declined by the time the shares are released to employees. Deductibility of employee share plan costs: Jerry Alberton Partner Tel: Issue In brief The Canada Revenue Agency CRA has updated its position on employer deductions for share plans that settle in newly issued stock.

The CRA responded by confining Transalta to its facts. Canco claimed deductions for reimbursements to USco in respect of these awards. A discussion of related issues follows.

Salary deferral arrangements SDAs Employers should ensure that the share plan is not an SDA, which can trigger an immediate employee income inclusion if deferrals of compensation do not meet accounting for employee stock options canada exemptions.

Market-purchased shares It is uncertain whether the CRA will accept that there is no section 7 agreement when an employer has the discretion to issue previously unissued shares or shares purchased on the market. Timing of a chargeback If a corporate parent charges a Canadian subsidiary the fair value amortized over the vesting period and accounts for the compensation cost on an equity i.

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