2000 Ruling 2000-0010723 - STOCK BONUS 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 Department.

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

Principal Issues:

Is the proposed arrangement an Employee Benefit Plan?

Position:

Yes

Reasons:

The plan meets the definition of an EBP and there is no agreement to issue or sell shares to the employee/ beneficiaries of the plan. The employees are income beneficiaries of the plan to ensure compliance with the Department's position stated in our reply to question 28 of the 1985 CTF Round table.

XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX 							2000-001072
XXXXXXXXXX 

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX, in which you requested 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) "Bonuses" means "Discretionary Bonuses" declared by the Corporation from time to time and paid in recognition of individual executive achievements,
"Cash Bonuses" paid in respect of the XXXXXXXXXX, and
"Participation Bonuses" paid in respect XXXXXXXXXX;

(c) "Corporation" means: XXXXXXXXXX;

(d) "Participants" means the XXXXXXXXXX senior executives of the Corporation as may be designated from time to time by the Chief Executive Officer;

(e) "Plan" means the Deferral Incentive Program which is the subject of this ruling;

(f) "Trust" means The trust established with trustee(s), a majority of whom will be resident in Canada (the "Trustees") appointed from time to time XXXXXXXXXX the Corporation;

(g) "Shares" means the common shares of the Corporation.

Facts

1. The Corporation is a public corporation and a taxable Canadian corporation as defined by subsection 89(1) of the Act.

2. The Corporation has established a comprehensive benefit program for its senior executives.

XXXXXXXXXX

3. Cash Bonuses are generally payable no later than XXXXXXXXXX of each year. Generally, Discretionary Bonuses must also be paid within the same time period. The Cash Bonuses and the Discretionary Bonuses for XXXXXXXXXX have not become payable at the time of this ruling.

Proposed Plan

4. The Corporation proposes to establish the Plan for designated Participants.

5. The Plan will permit Participants to defer Bonuses, as follows:

(a) provided an advance tax ruling can be obtained before the date the Cash Bonuses and Discretionary Bonuses become payable, for the first year, the contribution to the Plan of the Cash Bonuses and the Discretionary Bonuses, that would otherwise become payable to the Participants in respect of XXXXXXXXXX, will be mandatory. The Participation Bonuses will not be contributed in the first year;

(b) for each subsequent Bonus, the Participant must elect whether all or a portion of the Bonus that would otherwise be payable to the Participant for that fiscal year will be contributed to the Plan. The election must be made

(i) in respect of Bonuses that would be paid in the subsequent year, by XXXXXXXXXX of each year, and

(ii) in respect of all other Bonuses, at least XXXXXXXXXX days prior to the date the bonus would otherwise be payable.

The elections are irrevocable once made.

6. Within XXXXXXXXXX days of the Bonuses being declared the Corporation will deposit a lump sum amount to the Trust equal to the portion of the Bonuses for which elections have been made.

7. The Trustees will use the funds contributed by the Corporation to purchase such assets as are authorized in a statement of investment policies and goals established for the Trust. These assets may include previously-issued Shares where such Shares are acquired on the open market. The Trustees will have no discretion to use the funds contributed to the Trust for any other purpose and none of the Shares or other assets acquired by the Trust will knowingly be knowingly acquired from the Corporation or any person related to the Corporation.

8. The Trust will hold the Shares and any other assets of the Plan until such time as the Participant's entitlement to benefits under the Plan vests.

9. Title in the Shares and other assets acquired with amounts contributed to the Plan in respect of specific Bonuses will vest in the Participant no later than the last business day of the XXXXXXXXXX calendar year following the year in which the services were rendered for which the Bonuses are paid. The vested Shares and any other vested assets will be distributed by the Trustee to each Participant forthwith.

10. In the event that a Participant resigns, is terminated or there is a change in control of the Corporation, title to any previously unvested Shares and other assets of the Plan will vest in the Participant on the XXXXXXXXXX day following the resignation termination or change of control unless, before such time, the Participant notifies the Trustees, in writing. that the vesting of title in the Shares and other assets is to be deferred. In no circumistances may vesting be deferred beyond the last business day of the XXXXXXXXXX calendar year following the year in which the services were rendered in respect of Bonuses for which amounts were contributed to the Plan.

11. All dividends paid by the Corporation on Shares held by the Trust prior to their vesting and distribution, as set out in paragraphs 9 and 10 above, as applicable, will be paid to the Trust. The Trustees will exercise the voting rights attached to the shares held by the Trust.

12. The Participants will be the income beneficiaries of the Trust. All dividends and other income received by the Trust will be paid to the income beneficiaries by the end of the calendar year in which the Trust received the dividends.

13. All costs of establishing the Plan, including any legal and accounting fees will be paid by the Corporation. The Trust will pay the administration costs of the Plan, including any legal, accounting and brokerage fees unless the Corporation and the Trust agree that the Corporation is to bear such expenses.

14. The Corporation reserves the right to amend or terminate the Plan, at any time provided that any such amendment or termination will not reduce the rights accrued to any Participant at the date of amendment or termination of the Plan or result in the invalidation of any of the rulings provided in this letter.

Purpose of the Proposed Plan

15. The purpose of the proposed plan is encourage the retention of senior executives of the Corporation who are believed to contribute significantly to the financial success of the Corporation.

Additional Information

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

i) are in an earlier return of the Corporation or a person related to the Corporation;

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

iii) are under objection by the Corporation or a person related to the Corporation;

iv) are before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired, and

v) are the subject of a ruling previously issued by the Directorate.

Rulings

Provided the above statement of facts and proposed plan are accurate and constitute a complete disclosure of all relevant facts and provided the plan is established as proposed, we rule as follows:

A. The Plan will constitute an "employee benefit plan" as that term is defined in subsection 248(1) of the Act.

B. The Plan will not constitute a "retirement compensation arrangement" as that term is defined in subsection 248(1) of the Act.

C. The Plan will not constitute a "salary deferral arrangement" as that term is defined in subsection 248(1) of the Act by virtue of paragraph (k) thereof.

D. The Corporation's contributions to the Trust under the Plan will be deductible by the Corporation to the extent provided in subsection 32.1(1) of the Act;

E. Section 7 of the Act will not apply in respect to the Plan to determine the taxation of the Participants;

F. An amount will be included in a Participant's income under paragraph 6(1)(g) of the Act, in the year in which Shares or other assets are distributed by the Trust to the Participant equal to the fair market value of the Shares or other assets at the time they are distributed;

G. Except as provided in ruling F above no amount will be included in the income of a Participant under subsection 5(1) or paragraph 6(1)(a) of the Act by virtue of the Participant participating in the Plan; and

H. Subject to paragraph 18(1)(a) and section 67 of the Act, all costs referred to in paragraph 13 above that are incurred by the Corporation in the establishment and/or administration of the Plan will be deductible in accordance with section 9 of the Act.

These rulings are given subject to the limitations and qualifications set forth in Canada Customs & Revenue Agency (the "Agency") Information Circular 70-6R3 dated December 30, 1996, and are binding upon the Agency provided the Plan is implemented on or before XXXXXXXXXX.

Yours truly,

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