CRA rules on a phantom stock plan for a Canadian wholly-owned subsidiary of a non-resident company

CRA provided a ruling (albeit, guarded in its wording), that a phantom stock plan provided by a wholly-owned sub of an non-resident SA to five of its key employees would not be treated as a salary deferral arrangement. Speaking generally, the plan provided that on the occurrence of a “Triggering Event” an employee would receive a cash payment equal to the excess of the “Market Value” of the employer’s shares on the Triggering Event over their Market Value on grant. Except where the Triggering Event was one which disclosed a value (namely, an acquisition of control, amalgamation, business sale or IPO), the “Market Value” was computed as nine times the average adjusted EBITDA for the previous two fiscal years plus working capital, as adjusted, and minus long-term debt. In addition to the “Material Change” Triggering Events referenced above, a Triggering Event included the employee’s death, departure or retirement, and termination of employment for any reason other than for things like theft.

Neal Armstrong. Summary of 2015 Ruling 2014-0546131R3 F under s. 248(1) - salary deferral arrangement.