• Employee Stock Option Surrender Payments Non-Deductible
  • February 25, 2011 | Authors: Pamela L. Cross; Stephanie A. Wong
  • Law Firms: Borden Ladner Gervais LLP - Ottawa Office ; Borden Ladner Gervais LLP - Toronto Office
  • On December 21, 2010, the Tax Court of Canada dismissed the taxpayer’s appeal in Imperial Tobacco Canada Limited v. The Queen. The case concerned whether the taxpayer, the successor by amalgamation to Imasco Limited, was entitled to deduct in computing its income for its 2000 taxation year, a total of $118,575,528 paid to its employees for surrendering stock options under its employee stock option plan (SOP). While the taxpayer contended that the amounts were paid as employee compensation to satisfy its obligations under the SOP, the Crown successfully argued that the deduction was precluded by paragraph 18(1)(b) of the Income Tax Act (Canada) (the Act) as the amounts were paid on account of capital in the course of a corporate reorganization, and not as employee compensation.