http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/231099/index.do
Ferlaino v. Canada (May 17, 2017 – 2017 FCA 105, Scott (author), Boivin, de Montigny).
Précis: The taxpayer was granted employee stock options denominated in US dollars. When he exercised the options he reported the benefit based on the exchange rate prevailing at the date of the grant of the options. CRA assessed him with an employment benefit based on the exchange rate prevailing at the date of the exercise of the options. He appealed unsuccessfully to the Tax Court and then appealed to the Federal Court of Appeal. The Court of Appeal dismissed the appeal from the bench, with costs, holding that the Tax Court had made no reviewable error.
Decision: The Court of Appeal found that there was no reviewable error in the Tax Court:
[4] In the present appeal, no taxable transaction occurred when the stock options were granted to the appellant since he did not acquire at that time a taxable benefit (Steen v. Canada, [1988] 1 C.T.C. 256, 19 F.T.R. 80). The case relied upon by the appellant to support his position that tax implications are triggered upon granting stock options (Canada (Attorney General) v. Henley, 2007 FCA 370, 371 N.R. 179 [Henley]) is distinguishable from the facts of this case, as this Court specifically mentioned in Henley (at paragraphs 13 and 18) that its conclusions were inapplicable in the context of employee stock options exercised under section 7 of the Act. Furthermore, the appellant has failed to point out any specific language in the Act or binding case law before this Court that justifies a different tax treatment for the calculation of taxable employee benefits derived from the exercise of foreign denominated stock options.
[5] The taxable transactions in this appeal occurred when the appellant exercised his stock options in 2010 and 2012, as this was the moment when the shares were acquired in exchange for an “amount paid” within the meaning of subparagraph 7(1)(a)(ii), and when the value of the appellant’s employment benefits could be ascertained under that same provision.
[6] Only then was the appellant required under paragraph 261(2)(b) of the Act to calculate his reportable benefits by converting at once all relevant amounts, being the exercise price, along with the fair market value of the shares at the time the appellant exercised his options, using the exchange rate applicable on the date of the exercise.
Thus the Court of Appeal dismissed the appeal from the bench, with costs.