2000 Ruling 2000-0034743 - Amendment to Phantom Stock 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: Will certain amendments to a 6801(d) plan cause the plan to no longer qualify under 6801(d) of the Regulations?

Position: No.

Reasons: The amendments do not offend the provisions of paragraph 6801(d).

XXXXXXXXXX
XXXXXXXXXX 2000-003474
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Company") (XXXXXXXXXX)

This is in reply to your letters dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted company.

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 other than the rulings described in 3 below.

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 amendments and purpose of the proposed amendments is as follows:

Facts

1. The Company is a resident of Canada and has a XXXXXXXXXX year end. It is a "public corporation" and a "taxable Canadian corporation" as those terms are defined in 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. The Company established "XXXXXXXXXX" (the "Plan") which became effective XXXXXXXXXX. The Canada Customs and Revenue Agency issued an advance income tax ruling (#992246 dated XXXXXXXXXX, 1999) and a supplemental advance income tax ruling (#993161 dated XXXXXXXXXX, 1999) (hereinafter collectively referred to as the "Ruling Letter") with respect to the Plan.

4. Under the Plan, certain key employees of the Company (the "Participants") have been granted XXXXXXXXXX units (the "XXXXXXXXXX"). The Plan is administered by the XXXXXXXXXX (the "Committee") of the board of directors of the Company(the "Board"). The number of XXXXXXXXXX credited to a Participant's notional account is determined by dividing the product of the Participant's bonus amount payable in respect of the calendar year preceding the date of grant under the Company's XXXXXXXXXX Plan (as defined in the Ruling Letter) and a Corporate Performance Factor (as defined in the Ruling Letter) by the average closing prices of a common share of the Company on the XXXXXXXXXX Stock Exchanges over the last XXXXXXXXXX trading days of the calendar year ending before the date of the grant. The XXXXXXXXXX credited to the Participant's notional account due to entitlements under the Company's XXXXXXXXXX Plan are categorized as XXXXXXXXXX Units ("XXXXXXXXXX") or XXXXXXXXXX Units ("XXXXXXXXXX"). A XXXXXXXXXX granted to a Participant that does not meet the XXXXXXXXXX Ownership Level (as defined in the Ruling Letter) is a XXXXXXXXXX. Where a Participant satisfies the XXXXXXXXXX Ownership Level, the Participant has the choice to receive XXXXXXXXXX% of the number of XXXXXXXXXX granted in cash or in XXXXXXXXXX. A Participant can accumulate additional XXXXXXXXXX in the Plan by electing to receive a percentage of his or her bonus amount under the XXXXXXXXXX Plan in the form of XXXXXXXXXX and by participating in the Employee Savings Plan (as defined in the Ruling Letter) whereby a number equal to XXXXXXXXXX% of the number of common shares of the Company acquired by the Participant under the Employee Savings Plan will be credited as XXXXXXXXXX to the Participant's notional account. Additional XXXXXXXXXX are also credited for Excess Pension Contributions (as defined in the Ruling Letter). At the time of payment of dividends on the common shares of the Company, each Participant's account is credited with a dividend equivalent, which is then used to acquire additional XXXXXXXXXX or XXXXXXXXXX. The Participant is entitled to redeem his or her vested XXXXXXXXXX and all XXXXXXXXXX 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 vested XXXXXXXXXX and the XXXXXXXXXX maintained in his or her account will be based on the fair market value of a common share of the Company. 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.

Proposed Amendments

5. The Company proposes to reward certain key employees that make a significant contribution to the successful completion of certain strategic transactions with a monetary award (the "Special Reward"). An employee will only be eligible to receive the Special Reward if, in the opinion of the Committee and subject to the approval of the Board, that employee directly and significantly contributed to the successful completion of the particular transaction which would involve, among such other criteria as the Committee may determine with the Board's approval, an evaluation of the employee's active participation in the structuring, negotiation, drafting and closing of the transaction. Grants of Special Rewards will be made at such times as the Committee, subject to Board approval, considers appropriate in the circumstances and will become payable within 90 days of the date they are granted. The Special Reward will not 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 of the Company.

6. The following amendments will be made to the Plan:

(a) Where a Participant is granted a Special Reward and the Committee and the Board designates the Special Reward as being eligible for the Plan, the Participant may elect to receive a percentage or the total of the Special Reward in the form of XXXXXXXXXX, provided that such election is made before the effective date that the Special Reward becomes payable. The employee will have 15 calendar days immediately before the Special Reward becomes payable to make an irrevocable election. The number of XXXXXXXXXX will be computed by dividing the amount of the Special Reward that the Participant has elected to receive in the form of XXXXXXXXXX by the average closing prices for a common share of the Company on the XXXXXXXXXX Stock Exchange over the last XXXXXXXXXX trading days ending the day before the effective date on which the Special Reward becomes payable.

(b) The definition of "Market Value" will be changed to delete the reference to the XXXXXXXXXX Stock Exchange. Consequently, market value, as of particular date, will mean the closing price for a common share of the Company on the XXXXXXXXXX Stock Exchange on that date.

(c) Any reference in the Plan to "the XXXXXXXXXX Stock Exchanges" will be deleted and changed to "the XXXXXXXXXX Stock Exchange".

(d) The terms of the Plan will provide that a Participant will not be entitled, either immediately or in the future, either absolutely or contingently, to receive 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 of the Company.

Purpose of the Proposed Amendments

7. The purpose of the proposed amendments as described in 6(a) above is to reward certain key employees of the Company for their significant contribution to the completion of certain strategic transactions effectuated by the Company and to allow the recipient of a reward to elect to receive all or part of such reward in the form of XXXXXXXXXX.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed amendments, and of the purpose of the proposed amendments described in 6(a) above, and provided that the proposed amendments are made as described above, we rule as follows:

A. 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.

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 amendments are made by XXXXXXXXXX. However, these rulings will be binding only in respect of the Plan described in the Ruling Letter and in 6 above and may not be binding in the event the Plan is amended as provided for under its terms.

Yours truly,

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