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Are stock options exercised by an employee allowed as "salary or wages" for SR&ED claims?

A 2005 court case (Alcatel Canada Inc., v. R. Feb. 24, 2005, Docket: 2003-748(IT)G,(TTC)) set a precedence that the benefits conferred on the employees by way of stock options constituted "...expenditures made in respect of an expense incurred in the year for salary or wages..."

On November 17, 2005 the Government of Canada proposed legislation that would prevent salary and wages incurred as a result of stock options to be qualified SR&ED expenditures. The proposal related to employee stock options applies to options granted and shares issued on or after November 17, 2005. The proposed legislation was introduced but not adopted prior to the dissolution of Parliament on November 29, 2005. To become law these proposals will have to be tabled once again and adopted by the next government. This is currently in progress.

Shares issued under a stock option plan before November 17, 2005 may still qualify for SR&ED tax credits.

More information can be found in MEUK Newsletter 2006-1.

The status of the proposed legislation can be found on the Parliment of Canada website.