2001 Ruling 2001-0104483 - PRESCRIBED PHANTOM SHARE PLAN

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Will a plan continue to satisfy the rules under paragraph 6801(d) after it is amended?

Position: Yes.

Reasons: The amendments will not result in any contravention of the provisions.

XXXXXXXXXX 						2001-010448

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Deferred Share Unit Plan for Key Employees
XXXXXXXXXX

This is in reply to your letters of XXXXXXXXXX, in respect of your 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) "CCRA" means: the Canada Customs and Revenue Agency;

(c) "Corporation" means: XXXXXXXXXX;

(d) "Plan" means: XXXXXXXXXX;

(e) "Regulations" means: The Income Tax Regulations; and

(f) "Rulings" means: The advance income tax rulings issued XXXXXXXXXX, 1999 (our file 983183), as amended by our letter of XXXXXXXXXX, 1999 (our file 990992).

Other terms used in this letter have the meanings set out in the Rulings as specified here:

(g) "Affiliate" means an affiliate of the Corporation as the term "affiliate" is defined in paragraph 3 of Revenue Canada's Interpretation Bulletin IT-337R3, Retiring Allowances;

(h) "Board" means the Board of Directors of the Corporation;

(i) "Committee" means XXXXXXXXXX, which is the committee of Directors of the Corporation whose mandate includes all executive compensation matters;

(j) "Conversion Date" means with respect to any calendar year, the date used to determine the Market Value of a Share for purposes of determining the number of DSUs to be credited in respect of that year to a Key Employee's account, which date shall be the last business day in the year immediately preceding the performance period (i.e. the calendar year);

(k) "Designated Broker" means an independent broker designated by the Participant to acquire Shares on the open market on the Participant's behalf;

(l) "DSU" means a "Deferred Share Unit" which is a unit credited by means of a bookkeeping entry on the books of the Corporation to a Participant's account in accordance with the terms of the Plan, the value of which, on a particular date, shall be equal to the Market Value of a Share;

(m) "Entitlement Date" means with respect to a Participant who had a Termination Date, the day that is thirty (30) days after the Termination Date, except in cases where termination will occur within ninety (90) days following a change in control of the Corporation (as defined in the Plan), in which case the Entitlement Date shall be the fifth (5th) trading day following the Participant's Termination Date;

Notwithstanding the foregoing, if a Participant's Entitlement Date falls between the record date and the payment date for dividends on Shares, such Participant's Entitlement Date shall be deemed to be the date immediately following the dividend payment date;

Notwithstanding the foregoing, if the Corporation is unable to calculate the number of DSUs credited to a Participant's account due to the lack of necessary data, such Participant's Entitlement Date shall be the next following trading day on which such data is available to the Corporation;

In any event, DSUs will be redeemed and amounts payable under the Plan will be paid to the Participant or the Participant's estate before December 31st of the calendar year immediately following the year in which the Participant's Termination Date occurred;

(n) "Key Employee" means an officer or other employee of the Corporation or of any Affiliate of the Corporation who, in the opinion of the Committee, has demonstrated a capacity for contributing in a substantial measure to the successful performance of the Corporation or of such Affiliate;

(o) "MIC" means "Management Incentive Compensation" which is the cash awards under the Corporation's Management Incentive Plan ("MIP"), based on corporate and business unit performance and individual contribution to the Corporation's results, measured against predetermined objectives, that may be payable to an employee of the Corporation or any Affiliate thereof in respect of a performance period (i.e. the calendar year);

(p) "Market Value" means on a particular day, means the average of the closing prices for a board lot of Shares on the XXXXXXXXXX Stock Exchange XXXXXXXXXX, on the five (5) trading days immediately preceding the particular day, or if at least one board lot of Shares shall not have been traded on the XXXXXXXXXX on any such day, on the immediately preceding day for which at least one board lot was so traded; or if, at any time, the Shares are no longer listed on the XXXXXXXXXX, then the Market Value shall be calculated on the basis of the average closing price, as aforesaid, for a board lot of Shares on the stock exchange on which the Shares are listed and had the greatest volume of trading during such five day period. The Market Value shall always depend on the fair market value of a Share or a share of a corporation related to the Corporation;

(q) "Participant" means a Key Employee who has been granted DSUs under the Plan;

(r) "Share" means a common share, without nominal or par value, of the capital stock of the Corporation;

(s) "Termination Date" means in respect of a Participant, the earliest date on which the Participant

(1) has ceased to be employed by the Corporation or any Affiliate for any reason whatsoever, including termination of employment by the employer (whether or not for cause), voluntary resignation, retirement from active employment or death of the Participant, and

(2) is not a Director of the Board or of a Board of Directors of an Affiliate.

Facts

1. The Corporation established the Plan effective XXXXXXXXXX, in accordance with the Rulings. The Plan was implemented within 6 months of the date of the Rulings and in accordance with the Rulings, Eligible Key Employees made elections to participate in the Plan for the XXXXXXXXXX calendar years.

2. Section XXXXXXXXXX of the Plan provides, in part, as follows:

"The Board may from time to time amend, suspend or terminate the Plan in whole or in part. However, any such amendment, suspension or termination shall not adversely affect the rights accrued to any Participant under any Agreement existing at the time of such amendment, suspension or termination without the consent of the affected Participant."

3. The Rulings, were provided with the following condition, as stated, in the final paragraph of our letter of XXXXXXXXXX, 1999:

"The above advance income tax rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and are binding upon Revenue Canada provided the Key Employees' Plan is implemented within six months of the date of this letter. Furthermore, these rulings, as well as the rulings provided in Advance Income Tax Ruling 983183, will be binding only in respect of the last version of the Key Employees' Plan, as submitted for our review, and will not be binding in the event the Key Employees' Plan is amended as outlined in subparagraph 5(m) above [which refers to section XXXXXXXXXX of the Plan]".

Proposed Amendments to the Plan

4. Pursuant to its amending power under section XXXXXXXXXX of the Plan, the Corporation proposes to amend the Plan, with effect as of the date the rulings requested herein are received, to provide the Corporation with the discretion to grant DSUs to Eligible Key Employees in addition to those which are granted as a result of any elections made by Eligible Key Employees pursuant to section XXXXXXXXXX of the Plan. Discretionary DSUs will be granted by the Chief Executive Officer of the Corporation, the Chairperson of the Committee or the Committee on such date and with such vesting conditions as the Chief Executive Officer of the Corporation, Chairperson or the Committee may determine in his, her or its sole discretion. Vested discretionary DSUs will be paid to Participants at the same time as other DSUs granted under the Plan.

5. Pursuant to its amending power under section XXXXXXXXXX of the Plan, the Corporation proposes to amend the Plan, with effect for terminations on or after the earlier of XXXXXXXXXX, and the date the rulings requested herein are received, to permit a Participant or the legal representative of a Participant to choose an Entitlement Date (the date as of which fixed value of the Bonus DSUs and vested Discretionary DSUs credited to the Participant's account is valued and becomes payable). The Entitlement Date may not be before the later of 15 days after the date on which the election is filed with the Corporation and 30 days after the Participant's Termination Date and may not be later than XXXXXXXXXX of the calendar year commencing immediately after the Participant's Termination Date.

6. Pursuant to its amending power under section XXXXXXXXXX of the Plan, the Corporation also proposes to amend section XXXXXXXXXX of the Plan to explicitly provide that any amendment or termination of the Plan shall be such that the Plan continuously meets the requirements of paragraph 6801(d) of the Regulations or any successor provisions thereto and that if the Plan is terminated, prior awards of DSUs shall remain outstanding and in effect and paid in due course upon the Participant's Termination Date.

7. Pursuant to its amending power under section XXXXXXXXXX of the Plan, the Corporation also proposes to amend the Plan to modify the wording of such other provisions of the Plan as required as a consequence of the proposed amendments described in 4 and 5 above, and to make minor changes to the wording of various provisions all as detailed in the revised text of the draft Plan dated XXXXXXXXXX provided with the request.

Purpose of the Proposed Plan

8. The proposed amendments to the Plan with respect to the grant of discretionary DSUs and the election of an Entitlement Date are intended to provide the Corporation with increased flexibility in using the Plan to provide retention incentives to Key Employees and to strengthen the link between employee and shareholder interests.

9. The purpose for the proposed amendments to the Plan with respect to the Plan amending and termination provisions is to ensure the continued validity of the income tax rulings in the event the plan is modified in the future.

Additional Information

10. To the best of your knowledge, none of the issues involved in this ruling are:

i) in an earlier return of the Corporation, a Participant, or any person related to the Corporation or a Participant;

ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation, a Participant, or any person related to the Corporation or a Participant;

iii) under objection by the Corporation, a Participant, or any person related to the Corporation or a Participant;

iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; nor

v) the subject of a ruling previously issued by the Directorate to the Corporation, other than the Rulings.

Rulings

Provided the preceding statements constitute a complete disclosure of all relevant facts, the proposed amendments to the Plan and the purpose of the proposed amendments to the Plan, and provided the Plan is amended as proposed, we confirm that:

A. The amendments described in 4 through 7 above, will not disqualify the Plan from being a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations.

B. Provided the Plan was implemented prior to the deadlines set out in the Rulings, the rulings issued in our Rulings will continue to be binding on the Agency in accordance with the practice outlined in Information Circular 70-6R4, dated January 29, 2001.

The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and are binding on the CCRA provided that the Plan is amended by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch