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. Will the amendment to the Plan cause the Plan not to meet the requirements of paragraph 6801(d) of the Regulations?
2. Since the Plan affects existing Participants, can we rule?
Position:
1. No
2. Yes
Reasons:
1. The amendment is a change in the formula which determines how many units are issued. The Plan still meets all the requirements of 6801(d).
2. We can rule that amendment does not cause plan to lose its status as a 6801(d) plan. Ruling is with respect to future amendment and future impact on awarding of units, not on already-awarded units.
XXXXXXXXXX 2000-002980
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear XXXXXXXXXX:
Re: XXXXXXXXXX - Amendment to
Executive Long-Term Incentive Plan (the "Plan")
This is in reply to your letter of XXXXXXXXXX in which you ask for a ruling on a proposed amendment to the above Plan. A copy of the Plan, including the proposed amendments was submitted with your request. The Plan was the subject of an advance income tax ruling dated XXXXXXXXXX, 1995 (E9431463).
DEFINITIONS
For purposes of this letter, the relevant definitions are those as defined in the First Ruling, as well as the following:
(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1. as amended to the date hereof.
(b) "Annual EPS Growth Rate" means the compound annual rate of growth of EPS in the EPS Growth Period as compared to the EPS of the relevant Base Year.
(c) "Base Year" means the 12-month period immediately preceding the relevant EPS Growth Period, or if such 12-month period does not have EPS, then the immediately preceding fiscal year of the Company in which EPS exists. For existing Participation Rights, the Base Year for the first EPS Growth Period is the year ended XXXXXXXXXX.
(d) "Company" means XXXXXXXXXX.
(e) "EPS", for each relevant period, means the consolidated net income per common share of the Company for that period.
(f) "EPSF" or "EPS Factor" means the percentage set forth in the table below for the relevant Annual EPS Growth Rate in each EPS Growth Period:
Annual EPS Growth Rate
EPS Factor
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
EPS Factors for Annual EPS Growth Rates between XXXXXXXXXX% and XXXXXXXXXX% not set out above shall be determined by interpolation.
(g) "EPS Growth Period", means a period equal to the Calculation Period, except that for existing Participation Rights, the first EPS Growth Period will commence on XXXXXXXXXX and co-terminate with the Second Calculation Period. However, an EPS Growth Period must end on a day immediately preceding an anniversary date of the start of the EPS Growth Period. That is, part years will not be considered.
(h) "First Ruling" means an advance income tax ruling E9431463 issued by this directorate on XXXXXXXXXX, 1995 in respect of the Plan.
(i) "Plan" means the XXXXXXXXXX Executive Long-Term Incentive Plan which was the subject of the First Ruling.
(j) "Regulations" means the Income Tax Regulations.
Our understanding of the facts, proposed amendments and purposes of the proposed amendments is as follows:
FACTS
1. The relevant facts are as stated in 1 through 5 of the First Ruling, and (as modified below) include the proposed Plan described in 6 and 7 of the First Ruling, which was established on XXXXXXXXXX and is now in effect.
2. The Company is a publicly traded company whose shares are traded on the XXXXXXXXXX stock exchanges. The authorized capital comprises XXXXXXXXXX common shares, XXXXXXXXXX Preferred Shares and XXXXXXXXXX Preferred Shares. At XXXXXXXXXX there were XXXXXXXXXX common shares outstanding, XXXXXXXXXX Preferred Shares outstanding, and no Preferred Shares outstanding.
3. XXXXXXXXXX.
4. The address of the Company is:
XXXXXXXXXX.
The Company files its tax returns with the XXXXXXXXXX Tax Centre, and is served by the XXXXXXXXXX Tax Services Office. The Company's business number is XXXXXXXXXX.
5. The first Participation Rights were granted on XXXXXXXXXX , and to date, are the only Participation Rights to have been granted under the Plan. The relevant dates in respect of these Participation Rights are:
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
The total number of notional Common Shares, or deferred share units", determined for the First Calculation Period under all the Participation Rights was XXXXXXXXXX.
PROPOSED AMENDMENTS
6. The formula setting out the Participation Allotment (as described in 7j of the First Ruling) will be amended as follows:
First Ruling
Proposed Amended Formula
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
This amendment has the effect of increasing the number of deferred share units that will be granted to a Participant, provided that certain thresholds in the growth of EPS are met. For example, if the Annual EPS Growth Rate is XXXXXXXXXX%, a Participant will receive XXXXXXXXXX% of the deferred share units to which he would be entitled without this amendment.
7. Other formulae in the Plan that determine the number of units to be issued will also be amended. For example, the Clawback Amount will be multiplied by the EPS Factor, as will the ARNI. These terms are defined in the First Ruling, and represent adjustments to the number of deferred share units to be issued under certain conditions.
8. The Plan as amended will not result in any Participant or person with whom the Participant does not deal at arm's length being entitled, either immediately or in the future, either absolutely or contingently, to receive or obtain any amount or benefit granted or to be granted for the purpose of reducing the impact, in whole or in part, of any reduction in the fair market value of the Common Shares.
PURPOSES OF THE PROPOSED AMENDMENTS
The purposes of the proposed amendments to the Plan are to increase the Company's ability to retain highly qualified key members of senior management in a highly competitive market; and to provide incentives for senior management to increase profitability of the Company based on a growth indicator that enhances share value for the Company's shareholders in the short term.
To the best of your knowledge, and that of the Company, none of the issues involved in this ruling request are:
i) in an earlier return of the Company or a related person,
ii) 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 or appeal by the Company or a related person,
iv) before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has not expired, or
v) the subject of a ruling previously issued by this Directorate, except as outlined above.
RULING GIVEN
Provided that the statement of facts and the description of the proposed amendments and their purposes are correct and constitute a complete disclosure of all the relevant facts and terms of the proposed amendments, and that the proposed amendments are established in the manner described above, we rule the proposed amendments as described in 6, 7 and 8 above will not, in and of themselves, cause the rulings in the First Ruling not to apply.
The above advance income ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and is binding on the Canada Customs and Revenue Agency provided that the proposed amendments are implemented on or before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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