2000 Ruling 2000-0007563 - SDA VESTING OF BONUS

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 proposed amendments to an arrangement adversely affect rulings that were previously obtained with respect to the plan?

Position:

No.

Reasons:

The proposed amendments do not have any effect on the rulings previously issued.

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XXXXXXXXXX 2000-000756
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Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Re: XXXXXXXXXX (the "Plan")

This is in reply to your letter of XXXXXXXXXX, in respect of rulings provided in our letters of XXXXXXXXXX, 1998 (our file 982536) and XXXXXXXXXX, 1998 (our file 983346) (the "Rulings") and certain amendments you wish to make to the Plan

Definitions and Abbreviations

In this letter, the following terms have the meanings specified and are the same as previously specified in our letter of XXXXXXXXXX, 1998:

(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof;

(b) "Plan" means the Stock Appreciation Rights Plan as described in your submission;

(c) "Employer" means: XXXXXXXXXX

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(d) "Participant" means an employee of the Employer who participates in the Plan; and

Terms that are capitalized below, have the meanings described in the Plan as detailed in the Rulings.

Facts

1. The Plan was implemented forthwith upon receipt of the Rulings, with the 1998 grants being made before XXXXXXXXXX. For purposes of the Act, the Plan falls within paragraph (k) of the definition of "salary deferral arrangement" ("SDA") because the Share Appreciation Rights ("SARs") granted in respect of services rendered in a taxation year are fully paid in cash by XXXXXXXXXX of the third calendar year following the end of the particular year in which the services were rendered. Rulings were issued regarding the status of the Plan and the tax treatment of the participants under the Plan, subject to the proviso that the Plan is not amended.

2. The Employer wishes to make three amendments to the Plan, none of which will adversely affect the operation of the Plan within the three year parameter set forth in paragraph (k) of the SDA definition.

Proposed Amendments to the Plan

9. It is proposed to amend the Plan as follows:

(a) the provisions of the Plan as described in paragraph 4 (vi) of our letter of XXXXXXXXXX, 1998, will be amended to change the waiver election date to a day that is 30 days prior to the vesting day as described in the Rulings. Accordingly, for a XXXXXXXXXX vesting day, in respect of SARs that are to vest on XXXXXXXXXX of a particular year, the Participant would need to file a waiver election no later than 30 days beforehand, i.e., XXXXXXXXXX of the particular year. All SARs granted in respect of services provided in a year will continue to fully vest by XXXXXXXXXX of the third calendar year following the year in which the services were rendered and will be fully paid out by XXXXXXXXXX of that third calendar year;

(b) the provisions of the Plan as described in paragraph 4(ii) and (iii) of our letter of XXXXXXXXXX, 1998, will be amended to permit a late grant in respect of services performed in 1999; and

(c) the provisions of the Plan as described in paragraph 4(v) of our letter of XXXXXXXXXX, 1998, will be amended to provide that on termination of employment, for cause, without cause or voluntarily by a Participant, the Participant will be entitled to receive payment for all vested SARs, but unvested SARs shall be forfeited and cancelled as of the effective date of termination.

Purpose of the Proposed Amendments

11. The proposed amendments are being made for the following reasons:

(a) Amendment (a) is proposed because the present mechanism for such deferral, as described in the Rulings is proving to be unduly complicated and unhelpful to Participants. In order to defer the vesting of a particular tranche of SARs, a Participant must currently file a waiver almost a full year in advance of the vesting date. (An exception was made for the 1998 tranche since the SARs were granted in December of 1998 immediately following the issuance of the Rulings and the Participants were permitted to waive the vesting of the 1998 tranche as well as the 1999 tranche by delivering their elections in December of 1998.) The proposal will allow Participants to make better informed decisions about the waiver of vesting,

(b) Amendment (b) relates to the 1999 year only. Under the terms of the Plan, the Effective Date of a grant of SARs is to be any time between January 15 and November 30 in a calendar year, except for 1998 which was the first year of the Plan (see paragraph 4(iii) of our letter of XXXXXXXXXX, 1998). Due to a major corporate reorganization that occupied the attention of the Employer during 1999, the grant for 1999 has not yet been made. However, the Employer intends to reward performance of the Participants during 1999; and

(c) Currently the Plan provides that where a Participant's employment is terminated for cause, all unredeemed SARs, whether vested or unvested, shall be forfeited and cancelled as of the effective date of such termination (see paragraph 4(v) of our letter of XXXXXXXXXX, 1998). Amendment (c) is intended to rectify the inadvertent omission of the events of termination without cause and voluntary resignation.

Additional Information

12. To the best of your knowledge and that of the Employer, none of the issues related to this request:

(1) have previously been reported in the Employer's or any related party's prior income tax returns:

(2) are being considered by a tax services office or tax centre in connection with the Employer's or a related party's prior income tax return;

(3) are under objection by the Participants or a related person;

(4) are before the courts; and

(5) are, except to the extent noted above, the subject of a ruling previously issued by this directorate to the Employer.

Rulings

Provided the above statement of facts and proposed amendments are accurate and constitute a complete disclosure of all relevant facts and provided the amendments are completed as proposed, we rule that the rulings provided in our letter of XXXXXXXXXX, 1998 will continue to be valid and binding upon the Canada Customs and Revenue Agency.

This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada and are binding provided the proposed amendments are implemented on or before XXXXXXXXXX.

Yours truly,

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