2000 Ruling 2000-0024213 - UNFUNDED RETIREMENT 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:
1. Is the amount something other than a pension due to short work history?
	2	Is the amount something other than a pension because of the non-competition clause?
3. Will shareholder's guarantee result in funding of the plan.?

Position:

1. No.

2. No.

3. No.

Reasons:
	1-3.	These positions were developed in a ruling previously provided, in respect of an arrangement that is substantially the same as the proposed plan.  (See E9711103)  (The original plan was not implemented at that time).

XXXXXXXXXX
XXXXXXXXXX 									2000-002421
XXXXXXXXXX 

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling in respect to 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) "Company" means: XXXXXXXXXX;

The Company is a wholly-owned subsidiary of XXXXXXXXXX;

(c) "Executive" means XXXXXXXXXX;

(d) "SRA" means the Company's non-funded supplementary retirement plan which is the subject of this ruling;

Facts

1. The Company is a "taxable Canadian corporation" as that term is defined in subsection 89(1) of the Act.

2. The Company does not sponsor a pension plan that is a registered pension plan within the meaning of the Act for its employees.

3. The Executive has been employed by the Company since XXXXXXXXXX and has received the following annual salary:

Year
Annual Salary
XXXXXXXXXX
$ XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

4. The Company wishes to implement the SRA for the Executive.

Proposed Plan

5. The SRA will have the following attributes:

(a) The benefit payable under the SRA will be an annual amount equal to 30% of the Executive's average annual salary (including all cash bonuses and incentives) during the 36 month period immediately preceding the date on which the Executive retires from the Company (the "Retirement Date").

(b) The SRA benefit will be payable on a monthly basis for 15 years subsequent to the Executive's Retirement Date.

(c) The obligation of the Company to pay the SRA benefits will be a contractual commitment. The Company's contractual commitment under the SRA will be guaranteed by the U.S. parent. The SRA will not be funded or otherwise secured in any way and in no event will contributions be made by the Company or its U.S. parent to a segregated account. The SRA benefits will be paid after the Retirement Date from the general revenues and reserves of the Company.

(d) The SRA benefits will fully vest in the Executive on the attainment of 12 years of continuous full-time service with the Company. Except for benefits described in (e), (f), and (g) below, no SRA benefits will be payable if the Executive's employment with the Company terminates for any reason prior to the date on which the Executive becomes fully vested.

(e) If the Executive's employment is terminated by the Company without cause prior to the fulfillment of the vesting requirement, a proportionate share of the vested benefit will be payable as follows:

From
Continuous Service Period To
Proportional Share of Benefit
XXXXXXXXXX
XXXXXXXXXX
10%
XXXXXXXXXX
XXXXXXXXXX
30%
XXXXXXXXXX
XXXXXXXXXX
50%
XXXXXXXXXX
XXXXXXXXXX
80%
XXXXXXXXXX

100%

(f) If the Executive dies prior to the fulfillment of the 100% vesting requirement and while still employed by the Company, the Company will pay to the Executive's spouse a lump sum amount equal to 24 months salary (including all cash bonuses and incentives received or payable) in effect at the time of death.

(g) In the event the Executive dies after the Retirement Date but prior to receiving all SRA benefits, the spouse of the Executive will be entitled to receive 75% of the amount the Executive would have received during the balance of the 15 year period or until the spouse's death (whichever is earlier). Similarly, if the Executive dies after fulfilling the 100% vesting requirement, while still employed by the Company, the spouse will receive the same survivor benefit described in this paragraph as though the Executive's Retirement Date were the day before the date of the Executive's death.

(h) Notwithstanding the vesting provision described in (d) above, benefits payable to the Executive under the SRA will be forfeited in any of the following circumstances:

(i) any transfer, pledge, attachment, or assignment by the Executive of the right to receive the SRA benefits;

(ii) involvement of the Executive in a business or activity which competes with the Company, within 18 months after terminating employment with the Company or within 18 months after the Retirement Date;

(iii) any willful and deliberate, or grossly negligent, act or omission by the Executive which is injurious to the Company or its affiliates; or

(iv) the Executive's employment with the Company is terminated for cause.

Purpose of the Proposed Plan

6. The purpose of establishing the SRA is to provide retirement benefits to a key executive of the Company.

Additionally, the SRA is designed to motivate the Executive to remain with the Company for an extended period. This purpose will be accomplished by paying periodic pension benefits to the Executive if the Executive attains 12 years of continuous service with the Company. Benefits are payable prior to the full satisfaction of the vesting condition but only in very limited circumstances, the effect of which is to maintain the incentive for the Executive to remain with the Company:

a) Where the Executive dies while employed by the Company and prior to attaining full vesting;

b) Where the Executive is terminated by the Company without cause; and

c) Where the Executive retires prematurely from the Company, benefits are payable but the benefits payable are severely reduced.

XXXXXXXXXX

Additional Information

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

i) are in an earlier return of the Company, a person related to the Company or the Executive;

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

iii) are under objection by the Company, a person related to the Company or the Executive and;

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

8. The issues described hereunder are the subject of a ruling issued on XXXXXXXXXX, 1997 by the Directorate in relation to File No. 971110. That ruling was binding upon Revenue Canada (now the Canada Customs & Revenue Agency or the "Agency") provided that the supplementary executive retirement plan that was the subject of the ruling was established by XXXXXXXXXX. The present ruling is sought because that plan was not established.

9. No significant transactions were completed prior to the submission of this ruling request.

10. The proposed transactions will not affect any outstanding tax liabilities of the Company.

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 SRA will not constitute a salary deferral arrangement ("SDA") as that term is defined in subsection 248(1) of the Act.

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

C. Any payment made by the Company to the Executive or the spouse of the Executive under the SRA will be included in the income of the recipient in the year it is received as a superannuation or pension benefit pursuant to subparagraph 56(1)(a)(i) of the Act.

D. No amount will be included in the income of the Executive under subsection 5(1) of the Act or paragraph 6(1)(a) of the Act as a result of, in and by itself, the Executive's participation in the SRA, other than as indicated in ruling C.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, and are binding upon the Agency provided the Plan is implemented by XXXXXXXXXX.

Yours truly,

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