In Transalta v. The Queen (2012 DTC 1106)
("Transalta"), the Tax Court of Canada
concluded that for the stock option rules in section 7 of the
Income Tax Act (the "ITA") to
apply there must be a "legally binding agreement" by the
corporate employer to issue shares to the employee. Following the
decision in Transalta, the Canada Revenue Agency (the
"CRA") received inquiries from its
auditors on the meaning of "agreement" for purposes of
section 7 and paragraph 110(1)(d). In CRA technical interpretation
2016-0641841I7, September 19, 2016, the CRA addresses those
inquiries.
Discretionary Share Bonus Plan
The CRA states that a discretionary share bonus plan is not
considered a legally binding agreement for purposes of the stock
option rules because the employer corporation's commitment is
fully discretionary. The CRA describes a discretionary share bonus
plan similar to the plan considered in Transalta. Under
that plan, at the beginning of a three-year period, a
