| Highlights
STOCK OPTIONS
Must Tax Be Withheld in Respect of Stock Option Benefits?
William R. Holmes
A question that frequently arises is whether income tax is required to be withheld in respect of stock option benefits. The position of the Canada Revenue Agency ("CRA") is that withholding is not required from the shares acquired on the exercise of an option, but amounts withheld from cash remuneration must generally be determined taking into account stock option benefits. However, the CRA "waives" this obligation, in part or in whole, in some circumstances. After describing the CRA's position, William Holmes examines the law to determine whether this position is correct. The conclusion is that there does not appear to be any withholding obligation whatsoever in respect of stock option benefits. Furthermore, contrary to the position taken by the CRA, it appears that stock option benefits do not have to be taken into account in determining amounts to be withheld from cash remuneration. The author notes that an employee will not necessarily obtain an advantage from the fact that tax is not withheld in respect of a stock option benefit. The employee may have an obligation under the instalment rules to pay instalments of tax in respect of the benefit. Indeed, it may even be to the employee's advantage to have tax withheld from salary on a voluntary basis, since instalment payments are required to be paid quarterly throughout the year even if the income arises late in the year whereas tax could be withheld from salary towards the end of the year.
PENSIONS
Retirement Compensation Arrangements in the Cross-hairs
Joel Cuperfain
The rules governing retirement compensation arrangements ("RCAs") were introduced in 1986 as part of a series of anti-avoidance rules to deal with perceived abuses in the area of executive compensation. RCAs are defined at subsection 248(1) of the Income Tax Act as, generally being an arrangement under which payments are made by an employer to a custodian in connection with benefits that are to be received by an employee on, after or in contemplation of any substantial change in the services rendered by the employee, the retirement of the employee, or the loss of an office or employment of the employee, subject to certain listed exclusions. In recent years, a number of innovative tax-planning strategies have been devised which take advantage of the unique rules applicable to RCAs. As Joel Cuperfain explains, this current use of RCAs as a tax-planning vehicle stands in stark contrast to the original view of the RCA regime as punitive rules which discouraged funding for supplemental executive retirement plans. The CRA is well-aware of some of these tax-planning structures and has explicitly identified the tax-avoidance strategies which it finds to be abusive. Over the past several months, the CRA has taken the opportunity to publicly warn taxpayers of the possible actions that the CRA could take to curtail perceived abuses involving RCAs.
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Board
Randy V. Bauslaugh
Blake, Cassels & Graydon LLP
Toronto
General Editor, Pensions
William R. Holmes
Thorsteinssons LLP
Vancouver
General Editor, Practice
Julie Y. Lee
Osler, Hoskin & Harcourt LLP
Toronto
General Editor, Incentives and Benefits
Elizabeth M. Brown
Hicks Morley Hamilton Stewart Storie LLP
Toronto
Caroline L. Helbronner
Blake, Cassels & Graydon LLP
Toronto
Mariette Matos
Buck Consultants
Toronto |