CRA discusses cross-border stock option income

In 2012-0459411C6, the CRA considered the allocation of cross-border stock option income between two or more countries. The question typically arises in cases where the relevant employee performs employment duties both inside and outside Canada. The CRA confirmed that the principles in the OECD’s commentary on Article 15 of its model tax treaty would apply. Generally the CRA will apportion the stock option income to each (source) country based on (a) the number of days of employment exercised in that country over (b) the total number of days in the relevant period during which the applicable employment services are exercised. In this respect, the relevant period is generally presumed to be the period of employment that is required as a condition for the employee to acquire the right to exercise the option (the vesting period). However, the CRA said it could also attribute the stock option income to a different period if the option is in-the-money at the time of the grant, or is not subject to a substantial vesting period. The CRA will apply these rules unless a particular tax treaty expressly overrides (i.e., provides for a different allocation).