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: Will a 6801(d) phantom stock plan still qualify where the number of deferred share units credited to notional accounts are adjusted to reflect a corporate reorganization?
Position: Where the value of the units after the reorganization equals the value of the units before the reorganization, yes.
Reasons: The conditions in 6801(d) would continue to be satisfied.
XXXXXXXXXX
XXXXXXXXXX 2000-000415
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Company") (XXXXXXXXXX)
This is in reply to your letter dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted company. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).
We understand that, to the best of your knowledge and that of the Company, none of the issues involved in the ruling request
(i) is in an earlier return of the Company or a related person,
(ii) is being considered by a tax services office or tax centre in connection with a previously filed tax return of the Company or a related person,
(iii) is under objection by the Company or a related person,
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) is the subject of a ruling previously issued by the Directorate.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts, proposed transaction and purpose of the proposed transaction is as follows:
Facts
1. The Company was incorporated XXXXXXXXXX and continued under the Canada Business Corporations Act, effective XXXXXXXXXX. The Company is a resident of Canada and a taxable Canadian Corporation. The Company is wholly-owned, directly or indirectly, by XXXXXXXXXX ("Parent"). Parent is a public corporation and a taxable Canadian corporation. The expressions "public corporation" and "taxable Canadian corporation" have the meaning assigned by subsection 89(1) of the Act.
The Company files its tax returns with the XXXXXXXXXX Tax Centre and is located within the area served by the XXXXXXXXXX Tax Services Office.
2.
XXXXXXXXXX.
3. In XXXXXXXXXX, the Company established "XXXXXXXXXX" (the "Plan"). The Canada Customs and Revenue Agency issued an advance income tax ruling (#971577 dated XXXXXXXXXX, 1997) (the "Ruling Letter").
4. Under the Plan, certain Canadian and non-resident directors of the Company have been granted share units (the "Participants"). The Plan is administered by a committee of the board of directors of the Company generally responsible for compensation related matters (the "Committee"). Under the Plan, a portion of each Participant's compensation is awarded in the form of deferred share units representing common shares of the Parent. These deferred share units are maintained in a notional account on behalf of each of the Participants. At the time of payment of dividends on the common shares of the Parent, each Participant's account is credited with a dividend equivalent, which is then used to acquire additional deferred share units. The Participant is entitled to redeem the deferred share units no earlier than his or her retirement, termination of employment or death, and no later than the end of the first calendar year following the said event. On that particular date, the value which a Participant will receive for the deferred share units maintained in his or her account is based on the fair market value of Parent's common shares. The Plan is a prescribed plan or arrangement as described in paragraph 6801(d) of the Income Tax Regulations and is therefore exempted from the definition of a "salary deferral arrangement", as contained in subsection 248(1) of the Act. The principal features of the Plan are more particularly described in the Ruling Letter.
5. As at XXXXXXXXXX, share units have been awarded to XXXXXXXXXX Participants pursuant to the Plan and XXXXXXXXXX share units in the aggregate have been issued.
6. As at XXXXXXXXXX, Parent owned directly XXXXXXXXXX common shares in the capital stock of XXXXXXXXXX ("Investmentco"). Parent also owned an additional XXXXXXXXXX Investmentco common shares through various wholly owned subsidiaries. Parent's aggregate direct and indirect interest in Investmentco approximated XXXXXXXXXX% of the Investmentco common shares.
7. Parent has expressed its intention to spin-off its interest in Investmentco to a separate public company followed by the acquisition of the remaining common shares of Investmentco by such company (the "Reorganization").
Proposed Transaction
8. As a consequence of the Reorganization, it is expected that the value of the Parent common shares, immediately after such transaction, will be substantially diminished. Accordingly, the value of a Participant's deferred share units under the Plan will suffer a corresponding decline. In order to reduce the impact of the anticipated decline in the value of the deferred share units caused by the Reorganization, the Committee may determine that, immediately following the Reorganization, the number of deferred share units recorded in each Participant's account should be adjusted so that the aggregate value of the deferred share units recorded in a Participant's account immediately after the Reorganization will be equal to the aggregate value of the deferred share units recorded in the Participant's account immediately before the Reorganization. This adjustment to the number of deferred share units credited to the Participant's notional account is contemplated in the Plan.
Purpose of the Proposed Transaction
9. The purpose of the proposed transaction is to adjust the number of deferred share units credited to a Participant's notional account in order to reflect the effects of the proposed Reorganization on the value of Parent's common shares.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transaction and purpose of the proposed transaction, and provided that the proposed transaction is completed as described above, we rule as follows:
A. Provided that the value of deferred share units immediately after the Reorganization equals the value of the deferred share units in a Participant's account immediately before the Reorganization, the equitable adjustment contemplated in 8 above will not disqualify the Plan from being a prescribed plan or arrangement as described in paragraph 6801(d) of the Income Tax Regulations and therefore will not disqualify it from exemption from the definition of a "salary deferral arrangement", as contained in subsection 248(1) of the Act.
B. Provided the Plan was implemented prior to the deadline set out in the Ruling Letter, the rulings issued in our Ruling Letter will continue to be binding on the Agency in accordance with the practice outlined in Information Circular 70-6R3 dated December 30, 1996. However, these rulings will be binding only in respect of the Plan described in the Ruling Letter and may not be binding in the event the Plan is amended as provided for under its terms.
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 70-6R3 dated December 30, 1996, and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2000
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2000
Email this Content