Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
1. Is the proposed arrangement a prescribed plan under paragraph 6801(d) of the Regulations?
2. If an employee of a subsidiary employer participates in a 6801(d) type of plan of the parent employer, can the disposal of the subsidiary by the parent be treated as a termination of the employee for the purposes of Regulation 6801(d)?
Position:
1. Yes.
2. No.
Reasons:
1. The plan meets the conditions specified in the Regulation.
2. The employer- employee relationship between the subsidiary and its employee would not be terminated by the disposal of the subsidiary by the parent corporation. Furthermore, if a plan provided for the payment of any amounts at the time of such a disposal, the plan would not meet the conditions of 6801(d).
XXXXXXXXXX 2000-001190
Attention: XXXXXXXXXX
XXXXXXXXXX , 2000
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling
This is in reply to your letters of XXXXXXXXXX in respect of a request for an advance income tax ruling on behalf of the above-noted Corporation.
Definitions and Abbreviations
In this letter, the following terms have the meanings specified:
(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof;
(b) "Allocated Amount" means an amount allocated to each Participant, equal to the amount by which a specified percentage of that Participant's annual salary, as defined in the plan, (the percentage to be determined at the discretion of the Committee), exceeds the Corporation's RRSP contribution for that year in respect of that Participant, as determined in 5(c) below;
(c) "Allocation Period" means any period corresponding to one of the Corporation's financial quarters ending on March 31, June 30, September 30 and December 31 respectively;
(d) "Board" means the board of directors of the Corporation;
(e) "Business Day" means a day other than Saturday or Sunday, on which banking institutions in XXXXXXXXXX are not authorized or obligated by law to close;
(f) "Committee" means the XXXXXXXXXX Committee of the Board or such other committee of the Board comprised of members of the Board as the Board shall from time to time appoint to administer the Plan;
(g) "Corporation" means: XXXXXXXXXX;
(h) "Designated Employee" means an employee of the Corporation or of one of its Subsidiaries who, subject to approval by the Board, is designated by the Committee. Notwithstanding anything in the Plan to the contrary, the Board shall have, at all times, the power to cancel, annul, rescind or otherwise remove an employee's designation under the Plan. For greater certainty, however, the removal by the Board of an employee's designation shall not affect any RSUs already credited to such employee's account;
(i) "Market Value" means the weighted average closing price for a board lot of the Shares traded on XXXXXXXXXX on the three (3) trading days immediately preceding a Reference Date or a Settlement Date, as the case may be, which prices shall be converted into Canadian dollars at the noon rate of exchange of the Bank of Canada on such date. If on a Reference or Settlement Date, as the case may, there is not a noon rate of exchange of the Bank of Canada, then the Market Value of a Share covered by the RSU shall be determined as provided above on the first day immediately preceding the relevant Reference or Settlement Date for which there was a noon rate of exchange. If, at any time, the Shares are no longer listed on theXXXXXXXXXX , the Market Value shall be calculated in such manner as may be determined by the Committee from time to time. The Market Value shall always be established in relation to the fair market value of a common share of the Corporation or of a corporation related thereto. The Market Value shall be rounded up to the nearest whole cent;
(j) "Participant" means an employee of the Corporation recommended by the Committee and approved by the Board to participate in the Plan;
(k) "Plan" means the Restricted Share Unit Plan (a draft copy of which was submitted on XXXXXXXXXX ) which is the subject of this ruling;
(l) "Reference Date" means with respect to any Allocation Period during which the Plan is in force, the date used to determine the Market Value of a Share for purposes of determining the number of RSUs to be credited in respect of such Allocation Period to a Participant's account, which date shall be, unless otherwise determined by the Committee and approved by the Board, the last Business Day of the Allocation Period in respect of which RSUs are being credited;
(m) "Resignation Date" means in respect of a Participant, the earliest date on which the Participant has ceased to be employed by the Corporation or a Subsidiary for any reason whatsoever, including termination of employment by the employer whether with or without cause, voluntary resignation, retirement from active employment, permanent disability or death of the Participant. Notwithstanding the foregoing, termination of employment shall not include the transfer of an employee from the Corporation to a Subsidiary, from a Subsidiary to the Corporation, or from a Subsidiary to another Subsidiary, or an approved leave of absence for a maximum period of three years and for greater certainty, the cancellation, annulment, rescission or removal of a Participant's designation as a Designated Employee by the Board or any determination by the Committee which either terminates or suspends a Participant's eligibility or participation under the Plan, otherwise than as a result of such Participant ceasing to be employed by the Corporation or a Subsidiary as provided for in the preceding sentence, shall not be included in the definition of Resignation Date with respect to a Participant who was also a Designated Employee at that time for purposes of this Plan. For purposes of this definition, a Participant will cease to be employed by the Corporation as of the date on which notice of dismissal becomes effective.
Notwithstanding the above, for the purposes of this advance income tax ruling, Resignation Date shall mean the earliest date on which the Participant is neither (i) an employee of the Corporation, one of its Subsidiaries or an "Affiliate" as that term is described in paragraph 3 of the Canada Customs and Revenue Agency's Interpretation Bulletin IT-337R3- Retiring Allowances nor (ii) a member of the Board of the Corporation, one of its Subsidiaries or an Affiliate;
(n) "Regulations" means the Income Tax Regulations;
(o) "RRSP" means a group registered retirement savings plan for employees of the Corporation in Canada administered by XXXXXXXXXX or their successors;
(p) "RSU" means Restricted Share Units;
(q) "Settlement Date" means with respect to a Participant for whom a Resignation Date has occurred, subject to section XXXXXXXXXX of the Plan (see below), the last Business Day of the calendar year following the calendar year during which the Resignation Date occurs. A Participant may, on or before the Resignation Date, choose, in writing, a date which is after the Resignation Date but before the date which would otherwise be the Settlement Date (the "Elected Date"). In such a case, the Settlement Date shall be the day which is four (4) trading days following the release of the Corporation's quarterly or annual financial results immediately following the Elected Date, provided that, if the Elected Date occurs on the same date as the release of the Corporation's quarterly or annual financial results, the Settlement Date shall, in such a case, be the fifth trading day immediately following such release of the Corporation's quarterly or annual financial results. Section XXXXXXXXXX provides, in part, that for purposes of the definition of Settlement Date, in case of death of a Participant, the Settlement Date shall be the day which is sixty days after the date of the Participant's death;
(r) "Shares" means the common shares of the Corporation;
(s) "Subsidiary" means a body corporate that is a subsidiary of the Corporation within the meaning of subsection 2(5) of the Canada Business Corporations Act.
Facts
1. The Corporation is incorporated under the laws of Canada. It is a "public corporation" and a "taxable Canadian corporation" as those terms are defined in subsection 89(1) of the Act. The Shares are traded on the XXXXXXXXXX The Corporation has a fiscal year-end of XXXXXXXXXX.
2. The Corporation has a stock option plan for its directors, officers and employees. The exercise price of options granted under the plan is determined by the Board, and cannot be lower than the market value of the shares on the date the options are granted. The options expire no later than 10 years after the date they are granted.
3. In addition to annual salary and benefits, senior executives of the Corporation and its Subsidiaries may be entitled to annual cash bonuses, as determined from time to time by management and by the Board, based on the individual's performance and merit, and on corporate performance. XXXXXXXXXX.
4. The Corporation contributes an amount equal to an employee's contributions to the RRSP, to a maximum of 5% of the employee's base salary paid by the Corporation during the year. The total amount of contributions made by the employee and Corporation to the RRSP cannot exceed the maximum amount permitted under the Act.
Proposed Plan
5. The Corporation proposes to establish the Plan for the Participants. For the purposes of this ruling, the more significant features of the Plan are as follows:
(a) the Plan will be administered by the Committee and will be effective XXXXXXXXXX;
(b) upon approval of a Participant by the Board, the Corporation will allocate an Allocated Amount to each Participant in the form of RSUs:
(c) a Participant shall have the right to cause the Corporation to continue to contribute all, or a designated portion of, the specified percentage of the Participant's salary (as referred to in the above definition of the term "Allocated Amount") to the RRSP in respect of that Participant, in which event the amount credited in the form of RSUs in respect of that Participant shall be correspondingly reduced. The Participant (using the form that may be prescribed from time to time by the Committee) shall make an election at any time following approval by the Board of their designation by the Committee, indicating the proportion if any of the Corporation's contribution to the RRSP which is to be continued; any such notification shall stay in effect for future fiscal years unless the Corporation is otherwise notified by the Participant in writing. For the year XXXXXXXXXX a Participant shall make their election in prescribed form after final approvals are obtained for implementation of the Plan;
(d) RSUs will vest to the extent of 50% to the Participant upon completion of 2 years of continuous employment with the Corporation or a Subsidiary from the date of hiring, and an additional 50% upon completion of 5 years of continuous employment from the date of hiring. RSUs will be doubled and fully vest to all participating executives in the event of a "Change of Control" of the Corporation as that term is defined in the Plan;
(e) the number of RSUs credited to a Participant, in respect of each Allocation Period, shall be based on the Allocated Amount in respect to the relevant Allocation Period, divided by the Market Value of a Share at the "Reference Date" relating to such period. For the fiscal year XXXXXXXXXX, RSUs will be credited, to the extent of 25% of a Participant's annual salary, as defined in the Plan, based on the Market Value of a common share on the 3 trading days immediately preceding each of XXXXXXXXXX;
(f) a Participant shall be credited with additional RSUs, equal to the amount of each dividend declared and paid by the Corporation on the Shares (excluding dividends paid in additional Shares, but including dividends which may be paid in cash or Shares at the option of the shareholder), multiplied by the number of RSUs credited in the Participant's RSU account on the record date for the payment of such dividend, and divided by the Market Value of the Shares, determined on the dividend payment date;
(g) the Corporation shall maintain or cause to be maintained for each Participant, a record of the amount of RSUs credited to the Participant, and written notification of the balance in the account shall be provided to each Participant annually. A Participant shall not be entitled to any certificate or other document evidencing the RSUs, and under no circumstances shall RSUs be considered Shares, nor shall they entitle any Participant to exercise voting rights or any other rights attaching to the ownership or control of Shares;
(h) the rights or interests of a Participant under the Plan shall not be assignable or transferable, otherwise than by testamentary disposition or in accordance with the laws governing the devolution of property in the event of death, and such rights shall not be encumbered;
(i) after the Resignation Date of a Participant, the Participant shall be entitled, on the Settlement Date, to an amount equal to the number of RSUs standing to the credit of the Participant, multiplied by the Market Value of the Shares determined on the Settlement Date;
(j) all expenses of administration of the Plan will be borne by the Corporation;
(k) in the event that the Shares are subdivided or consolidated into a different number of Shares, the number of RSUs recorded in the account of the Participant shall be adjusted by replacing such number by a number equal to the number of Shares which would have been held by the Participant immediately after the subdivision or consolidation, should the Participant have held a number of Shares equal to the number of RSUs recorded in the Participant's account, on the record date for such subdivision or consolidation;
(l) in the event that the Shares are exchanged into or exchanged for a different number or kind of securities of the Corporation or of another corporation, there shall be substituted for each Share referred to in the Plan the kind of securities into which each Share has been changed or for which each Share has been exchanged, and an equitable adjustment shall be made, if required, in the number of RSUs recorded in the account of the Participant;
(m) in the event that there are other changes in the number or kind of outstanding Shares or of any securities into which Shares have been changed or exchanged, there shall be substituted for each Share referred to in the Plan or for each security into which the Share has been changed or exchanged, the kind of securities into which each Share or each such security has been so changed or exchanged, and an equitable adjustment shall be made in the number of RSUs recorded in an executive's account;
(n) in the event that, at the Settlement Date, there is no public market for Shares or for securities substituted therefor, the obligations of XXXXXXXXXX under the Plan shall be satisfied by a payment in cash in such amount as is reasonably determined by the Committee to be fair and equitable in the circumstances. Notwithstanding the preceeding and the provisions of (l) and (m) above, the amount shall always be established in relation to the fair market value of a share of the Corporation or of a corporation related thereto;
(o) the Board may from time to time amend, suspend or terminate the Plan in whole or in part, or the terms of the RSUs credited in accordance with the Plan. If such amendment, suspension or termination will materially or adversely affect the right of a Participant with respect to RSUs credited to the Participant, the written consent to such amendment, suspension or termination shall be obtained, except that written consent shall not be required if such amendment, suspension or termination is required to comply with applicable laws, regulations, rules, orders of government or regulatory authorities or the requirement of any stock exchange on which shares of the Corporation are listed. If the Plan is terminated, RSUs previously credited shall remain outstanding and in effect and settled in accordance with the terms of the Plan, which shall continue to have effect for such purpose. The Plan will also provide that the Committee shall, on the date that is 5 years from the effective date of the Plan, reevaluate the Plan in light of its stated purpose;
Notwithstanding the foregoing, any amendment, suspension or termination of the Plan shall be such that the Plan continuously meets the conditions of paragraph 6801(d) of the Regulations or any successor provision thereto;
(p) the Corporation may be compensated by Subsidiaries in respect of individuals who are employees of the Subsidiaries;
(q) other than payments in satisfaction of RSUs as described herein, and of normal administration costs of the Plan, the Corporation shall not make any contributions or payments to a third party in respect of the Plan and, in particular, shall not make any contributions or payments to a custodian or trustee. In addition, third party guarantees shall not be provided with respect to any credits under the Plan; and reducing the impact of any reduction in the fair market value of the Shares or the shares of a corporation related to the Corporation.
Purpose of the Proposed Plan
6. The purpose of the Plan is to assist the Corporation and its Subsidiaries in attracting and retaining individuals with experience and ability, to allow senior executives of the Corporation and its Subsidiaries to participate in the long-term success of the group, and to promote a greater alignment of interests between the senior executives and the shareholders of the Corporation.
Additional Information
7. To the best of your knowledge, none of the issues involved in this ruling:
i) are in an earlier return of the Corporation or a person related to the Corporation;
ii) are being considered by a tax services office or tax centre in connection with a previously-filed tax return of the Corporation or a person related to the Corporation;
iii) are under objection by the Corporation or a person related to the Corporation;
iv) are before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired, and
v) are the subject of a ruling previously issued by the Directorate.
8. There will be no decrease in salary, bonuses or other remuneration paid to Participants as a result of their participation in the Plan
9. XXXXXXXXXX
Rulings
Provided the above statement of facts and proposed plan are accurate and constitute a complete disclosure of all relevant facts and provided the plan is established as proposed, we rule as follows:
A. The Plan will not constitute an "employee benefit plan" as that term is defined in subsection 248(1) of the Act;
B. The Plan will not constitute a "retirement compensation arrangement" as that term is defined in subsection 248(1) of the Act;
C. The Plan will be a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations, and as such will not constitute a "salary deferral arrangement" as that term is defined in subsection 248(1) of the Act;
D. Except for the amounts described in Rulings E and F below, no amount will be included in the income of a Participant pursuant to section 3, subsection 5(1), paragraph 6(1)(a), subsection 6(3), paragraph 56(1)(a), or subparagraph 115(1)(a)(i) of the Act, as a result of the participation of the Participant in the Plan;
E. An amount paid under the Plan in accordance with 5(i) above, to a Participant who is resident of Canada will be included in the income of the Participant pursuant to subsection 5(1) and section 6 of the Act for the year in which the amount is received;
F. An amount paid under the Plan in accordance with 5(i) above, to a Participant who is a non-resident of Canada will be included in the income of the Participant pursuant to subsection 5(1), section 6 and subparagraph 115(1)(a)(i) of the Act for the year in which the amount is received, to the extent the amounts are attributable to services rendered in Canada; and
G. Subject to paragraph 18(1)(a) and sections 67 and 78 of the Act, any amounts referred to in Rulings E and F that are incurred by the Corporation in a particular year will be deductible for that year in accordance with section 9 of the Act to the extent the amount is paid in respect of services rendered to the Corporation.
H. Subject to paragraph 18(1)(a) and sections 67 and 78 of the Act, any amounts referred to in Rulings E and F that are paid by a Subsidiary either directly to a Participant or as a reimbursement to the Corporation in a particular year will be deductible for that year in accordance with section 9 of the Act to the extent the amount is paid in respect of services rendered to the Subsidiary.
These rulings are given subject to the limitations and qualifications set forth in Canada Customs & Revenue Agency (the "Agency") Information Circular 70-6R3 dated December 30, 1996, and are binding upon the Agency provided the Plan is implemented on or before XXXXXXXXXX .
Yours truly,
XXXXXXXXXX for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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