Ali Pejman, CA - Institute of Chartered Accountants of BC

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Communications Director Moves to ICBC Doug McClelland, APR, Director of Communications at the ICABC, has moved on to become manager of Media Relations at the Insurance Corporation of British Columbia. He assumed his new role as ICBC corporate spokesman in early July after five years at the Institute. McClelland, a native of Ontario and a 1985 BBA graduate of Brock University, moved to Vancouver 11 years ago. Prior to joining the Institute, he was with Canada Post Corporation for nine years, finishing his time there as a Divisional Manager of Communications. He obtained his APR — professional accreditation — from the Canadian Public Relations Society in 1994 and was president of that organization’s Vancouver chapter in 1994-95. “I enjoyed getting to work on committees with chartered accountants from such a variety of backgrounds,” McClelland says. “I am particularly proud of having been involved in projects such as the BC Check- Up and visionary work like our long-term communications strategies.” McClelland says he feels strongly that the CA profession should always do as much as possible to promote the designation. “Of course, the marketplace and relationships are changing rapidly, but that will always be the case and the CA designation needs to remain in the forefront of the consciousness of the business community,” he says. McClelland and his wife Janice have two children; Michael, 7 and Jeremy, 5. — Deborah Folka, APR Impact of Technology cont’d from page 10 “We shared computers and we barely had phones on our desks,” he laughs. “Now we all have laptops, we’re totally networked and can get e- mail anywhere we go.” Bryson says clients are asking for more and more help on purchasing technology — hardware, software and systems — and there is now lots of consulting and research work for CAs who are knowledgeable in the area. “We are in the market of providing solutions that help our clients succeed and today that means technology,” he says. “I think the skill requirements for CAs is changing because of that. It takes much more than just being able to turn on a computer and operate a couple of programs. You must know how to manage information for your clients or employer. “The world is now ‘24-7’ as the kids say and that won’t change,” he continues. “In fact, expectations of our availability will only heighten and we simply have to service those demands.” Bryson points to new developments like continuous audits which will soon be made possible by new technology. “It’s great. We will get automated e-mail messages allowing us to respond to changes in the client’s financial information, compare it to norms and then the information and perhaps our analysis will be posted on the client’s Web site for investors and stakeholders to see,” he explains. “Reducing the turn-around on reliable financial information to days or even hours versus the months it take now. Now that’s technology at work!” Do you have any comments about the impact of technology on you as a CA? Send us an e-mail at beyondnumbers@ica.bc.ca and we’ll publish a selection of the letters we receive in the next issue of Beyond Numbers. 24 Beyond Numbers / September 2000
Tax Traps & Tips The Taxation of Share Options: An Update By Jeffrey R. Foreman, CA, Manager, Taxation, Ernst & Young LLP, Vancouver The Federal Budget that was delivered on February 28 th , 2000 included substantial proposed changes to the manner in which share options granted to employees are taxed. Other administrative changes have also been announced recently by the Canada Customs and Revenue Agency (the “CCRA”). This article will provide an analysis of the important changes and their impact on taxpayers. Although the Department of Finance has not released the draft legislation implementing the Budget measures as of July 14, 2000, this article will assume that all measures will be enacted as announced in the budget and effective as of the Budget date. Background: Prior to the measures announced in the 2000 Budget, the timing of the taxation of share options depended on whether or not the company that granted the options (the “Grantor”) was a Canadian Controlled Private Corporation (a “CCPC”) at the time that the option was granted. In general, a benefit equal to the fair market value of the share at the time the shares were acquired under the share option plan (the “exercise”), less the aggregate of the price paid to acquire the option (the “option price”) and the amount paid by the employee to acquire the share on exercise (the “strike price”), was included in the income of the employee at the time of the exercise pursuant to Section 7 of the Income Tax Act (the “Act”). If the Grantor was a CCPC at the time the option was granted, then the inclusion in the income of the employee was deferred until the time that the share was ultimately disposed of by the employee. In either case, there were no tax consequences to the employee at the grant of the option. Pursuant to paragraph 110(1)(d) or (d.1) of the Act, employees who dealt with the Grantor at arm’s length immediately after the granting of the option were eligible for a deduction of ¼ of the Section 7 benefit in computing their taxable income if either of the following conditions were met: • If the fair market value of the share at the time of the grant was equal to or less than the aggregate of the option price and the strike price, or • In the case of a Grantor that was a CCPC at the time that the option was granted, if the employee held the share for at least two years after the exercise and had not already taken the ¼ deduction described above. The effect of the rules was to include ¾ [assuming eligibility for the 110(1)(d) or (d.1) deduction] of the benefit received in the income of the employee in the year the option was exercised (or when the shares were actually sold where the Grantor was a CCPC). The February 28 th , 2000 Budget Measures: The 2000 Federal Budget proposes to implement changes to address a flaw in the manner in which options were taxed. Under the existing system, employees (other than employees of a Grantor that was a CCPC at the time the option was granted) were taxed at the time the options were exercised. Accordingly, an employee could face a significant tax liability in the year of the exercise, but have no cash to pay the taxes because they had not sold the shares. It was quite common for the employee to dispose of a portion of the shares acquired, and use the proceeds to fund the tax liability. In order to remedy this situation, the Budget implemented a deferral of the income inclusion for options that were exercised after February 27 th , 2000 (the grant date of the options is irrelevant for the purposes of the deferral). The deferral is limited to share option benefits that would be eligible for the 110(1)(d) deduction, on shares that are traded on a prescribed exchange (most of the major exchanges in the world). The deferral is further limited to the first $100,000 of share options that are granted to the employee and that vest in any one year. The $100,000 amount is computed by reference to the fair market value of the shares at the time the option is granted, so the actual amount of income deferred could be substantially higher than $100,000 in cases where there is a significant increase in the value of the shares underlying the option. The deferral ends at the earlier of the date which the shares are actually disposed of, the death of the employee, or the date the employee ceases to be a resident of Canada. Because the fair market value of the share may change from the time of the exercise to the time of the actual disposition, the disposition of the shares may result in a capital gain or loss to the employee (in addition to the Section 7 benefit). The employee will receive a “bump” under paragraph 53(1)(j) of the Act to the ACB of the shares acquired under the option to reflect the income inclusion from the exercise and subsequent sale of the shares, so the benefit will not be taxed twice. The Budget proposes to lower the capital gains inclusion rate from ¾ to 2/3 September 2000 / Beyond Numbers 25
Page 1: The Galloping Impact of Technology
Page 4 and 5: For the Profession By Richard Rees,
Page 6 and 7: Cover Story The Galloping Impact of
Page 8 and 9: As the technology partner with the
Page 10 and 11: grasped the importance of technolog
Page 12 and 13: Firms Like Wolrige Mahon Get a Head
Page 14 and 15: High-tech leader launches BC Busine
Page 16 and 17: 16 Beyond Numbers / September 2000
Page 18 and 19: Under New Management By Deborah Fol
Page 20 and 21: Member Recognition Procedures for E
Page 22 and 23: Member Profile CA Brand Emphasizes
Page 26 and 27: Employment Tax Traps & Opportunitie
Page 28 and 29: Employment Opportunities 28 Beyond
Page 30 and 31: At Your Service Warren L. Dueck, CA

Ali Pejman, CA - Institute of Chartered Accountants of BC

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