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.
Principal Issues: Will the existing rulings for an existing DSU plan continue if the plan is amended to:
1) change the method of calculating the payout value; and
2) change the period in which the payout must occur.
Position: Yes.
Reasons: 1) Paragraph 6801(d) of the Regulations requires a payout be based on the FMV of a share of a Corporation or a related corporation. The existing plan uses a formula that uses the closing price of a share determined on a particular date on a particular exchange. XXXXXXXXXX .
The existing plan uses the same formula to determine the number of DSUs to be awarded to a participant. This formula will not be amended for the purpose of awarding DSUs. This simpler formula is being used to simplify the determinations required for the more frequent allocation of units. XXXXXXXXXX .
2) The change in payout dates is not an issue as it fully complies with the requirements of paragraph 6801(d) of the Regulations.
XXXXXXXXXX 2008-026563
XXXXXXXXXX , 2008
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling
XXXXXXXXXX . (the "Corporation") BN XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX , wherein you requested an advance income tax ruling with respect to an amendment to the arrangement for which an advance income tax ruling was previously issued on behalf of the above-noted taxpayer.
This letter is based solely on the facts and proposed transactions described below. The documentation submitted in respect of your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.
Definitions and Abbreviations
1. All terms used herein that are defined in the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof (the "Act") have the meaning given in such definitions unless otherwise indicated.
2. All Capitalized Terms used herein have the meanings assigned to such terms in our ruling 2001-010422 dated XXXXXXXXXX , 2001 (the "Ruling") unless otherwise stated.
Facts
3. The Corporation was incorporated under the laws of XXXXXXXXXX , is a resident of Canada, a "taxable Canadian corporation" and a "public corporation".
4. The Corporation files its tax returns with the XXXXXXXXXX Tax Centre and is located within the area served by the XXXXXXXXXX Tax Services Office.
5. The Common Shares of the Corporation are publicly traded on the XXXXXXXXXX Stock Exchanges. The Corporation has a fiscal year-end of XXXXXXXXXX
6. The Corporation established "XXXXXXXXXX " (the "Plan") for the benefit of resident and non-resident Eligible Directors of the Corporation. The Plan was the subject of the Ruling.
7. Under the Plan, the term "Market Value" on any particular day, means the market value of one Common Share of the Corporation on such day which, (1) for Eligible Directors resident in Canada, shall be calculated on the basis of the closing price for a board lot of Common Shares on XXXXXXXXXX Stock Exchange on that day, or if at least one board lot of Common Shares shall not have been traded on XXXXXXXXXX Stock Exchange on that day, on the immediately preceding day for which at least one board lot was so traded, and (2) for all other Eligible Directors, shall be calculated on the basis of the closing price for a round lot of Common Shares on XXXXXXXXXX Stock Exchange on that day, or if at least one round lot of Common Shares shall not have been traded on XXXXXXXXXX Stock Exchange on that day, on the immediately preceding day for which at least one round lot was so traded; or if, at any time, the Common Shares are no longer listed on such stock exchange, then the Market Value shall be calculated on the basis of the closing price, on the aforesaid day, for a board or round lot of Common Shares on the stock exchange on which the Common Shares are listed and had the greatest volume of trading on that particular day.
8. The Plan provides that 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 of any Participant under any Agreement existing at the time of such amendment, suspension or termination without the consent of the affected Participant. Notwithstanding the foregoing, any amendment or termination of the Plan shall be such that the Plan continuously satisfies the requirements of Regulation 6801(d) of the Act or any successor provision thereto.
9 The Plan provides that no amount will be paid to, or in respect of, an Eligible Director under the Plan or pursuant to any other arrangement, and no Share Units will be granted to such Eligible Director to compensate for a downward fluctuation in the price of the Common Shares, nor will any other form of benefit be conferred upon, or in respect of, an Eligible Director for such purpose.
Proposed Amendments To the Plan
10. The Corporation proposes to amend the Plan to add the term "Payout Market Value" "Payout Market Value" on any particular day means the market value of one Common Share on such day which, (1) for Eligible Directors resident in Canada, shall be calculated on the basis of the simple average of the closing prices of the Common Shares on XXXXXXXXXX Stock Exchange, during the XXXXXXXXXX trading days prior to that date, (or if no trades occur on a particular day, the average of the bid and asked prices on XXXXXXXXXX Stock Exchange on that day shall be used), and (2) for all other Eligible Directors, shall be calculated on the basis of the simple average of the closing prices of the Common Shares on XXXXXXXXXX Stock Exchange, during the XXXXXXXXXX trading days prior to that date, (or if no trades occur on a particular day, the average of the bid and asked prices on XXXXXXXXXX Stock Exchange on that day shall be used), or if, at any time, the Common Shares are no longer listed on such stock exchange, then the Payout Market Value shall be calculated on the foregoing basis for the stock exchange on which the Common Shares are listed and had the greatest volume of trading during the last XXXXXXXXXX trading days."
11. The Corporation further proposes to amend the provisions of the Plan described in 10(d) of the Ruling to provide that:
Except as may be determined by the Committee, and approved by the Board, or except as set forth below, the Entitlement Date of a Participant with respect to whom Termination of Board Service has occurred shall be the tenth (10th) trading day following the release of the Corporation's quarterly or annual results immediately following Termination of Board Service by the Participant. In no event shall the Entitlement Date occur later than XXXXXXXXXX months after the beginning of the calendar year commencing immediately after the Termination of Board Service by the Participant. A Participant shall receive no later than XXXXXXXXXX months after the beginning of the calendar year commencing immediately after the Termination of Board Service by the Participant, at the discretion of the Committee, and as approved by the Board, in satisfaction of the number of Share Units recorded in the Participant's account on the Entitlement Date: (1) a number of Common Shares to be purchased on the open market equal to the number of Share Units then recorded in the account of the Participant, or as may be adjusted pursuant to the Plan, and reduced by any applicable withholding taxes and other source deductions reflected in the form of Share Units, required by law to be withheld by the Corporation in connection with the total payments made in satisfaction of the Participant's Share Units; or (2) a cash payment equal to the product determined by multiplying: (a) the number of Share Units then recorded in the account of the Participant, by (b) the Payout Market Value of a Common Share on the Entitlement Date, net of applicable withholdings. No payment of Share Units shall be made by the Corporation to a Participant under the Plan until Termination of Board Service has occurred with respect to such Participant.
Purpose of the Proposed Amendments To the Plan
12. The proposed changes are for administrative simplicity, to ensure a better methodology for determining final payouts on termination of service.
13. The proposed changes described in 11 above, also limit the time in which payouts can be made and are intended to match the provisions of the Plan to the terms and conditions of similar plans used in the United States.
14. To the best of your knowledge and that of the above-referenced taxpayer, none of the issues involved in the ruling request is:
(i) in an earlier return of the Corporation or a related person;
(ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation or a related person;
(iii) under objection by the Corporation or a related person;
(iv) before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has expired, or
(v) the subject of a ruling, other than the Ruling referred to above, previously issued to the Corporation or a related person by this Directorate.
Ruling
Provided the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed amendments to the Plan and purpose of the proposed amendments to the Plan, and provided the proposed amendments to the Plan are made as described above, we rule as follows:
The proposed amendments to the Plan will not, in and of themselves, cause the rulings given in the Ruling to cease to be binding on the CRA, in accordance with the practice outlined in Information Circular 70-6R5 dated May 17,2002.
The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and is binding on the Canada Revenue Agency provided that the proposed amendments to the Plan are completed by XXXXXXXXXX .
1. Nothing in this letter should be construed as implying that the Canada Revenue Agency has confirmed, reviewed or made any determination in respect of any tax consequences relating to the facts, or the proposed amendments to the Plan or any transaction or event taking place either prior or subsequent to the implementation of the proposed amendments to the Plan, whether described in this letter or not, other than those specifically described in the ruling given above.
2. The fair market value of a Common Share, at any particular time, is a question of fact and nothing in this ruling should be construed as implying our acceptance of any method for the determination of the fair market value of a Common Share for the purposes of the proposed transaction.
Yours truly,
Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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