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 the payment of director's fees in the form of deferred share units result in an SDA?
Position:
No.
Reasons:
6801(d) is satisfied.
XXXXXXXXXX 2000-004481
Attention: XXXXXXXXXX
XXXXXXXXXX , 2000
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, requesting an advance income tax ruling on behalf of XXXXXXXXXX (collectively the "Corporations").
Our understanding of the facts, proposed plan and purpose of the proposed plan is as follows:
Facts
1. XXXXXXXXXX.
2. Parentco is a public corporation as defined in the Income Tax Act (Canada) (the "Act"). Each of Parentco, XXXXXXXXXX are taxable Canadian corporations as defined in the Act. XXXXXXXXXX are corporations incorporated in the United States and carry on business exclusively in the United States.
3. Parentco had XXXXXXXXXX common shares outstanding as at XXXXXXXXXX. The principal market for trading in the common shares is the XXXXXXXXXX.
Proposed Plan
4. The Corporations are proposing to establish a new arrangement (the "Plan") to promote a greater alignment of interests between certain of their directors (the "Members") and shareholders of each of the Corporations. You have included a copy of the Plan with your request for this advance income tax ruling. The new arrangement would apply in respect of service on and after XXXXXXXXXX both by current Members and by individuals who become Members after XXXXXXXXXX.
5. Certain terms are defined as follows for purposes of the remainder of this ruling:
"Annual Board Retainer" means the aggregate basic annual remuneration paid by a Corporation to its Director in a financial year for service on the Boards together with Board committee fees and additional fees and retainers to committee chairs, but excluding Attendance Fees.
"Affiliate" includes any related or associated corporation, or any corporation that is a member of a group of corporations that do not deal at arm's length, notwithstanding that they may not be related or associated for purposes of the Income Tax Act (Canada).
"Attendance Fees" means the aggregate fees paid by a Corporation to its Director in a financial year for attendance at meetings of the Boards and their committees.
"Board" means the board of directors of any of the Corporations.
"Corporations" means XXXXXXXXXX and any successor corporations whether by amalgamation, merger or otherwise.
"Deferred Share Unit" means a share unit notionally credited to a Member's Deferred Share Unit Account through a bookkeeping entry, the value of which at the relevant time shall be equal to the weighted average trading price per Share on the XXXXXXXXXX for the last five Trading Days immediately before the date in issue.
"Deferred Share Unit Account" means an account maintained by XXXXXXXXXX for each Member which will be credited with notional grants of Deferred Share Units received by such Member from time to time.
"Director" means a director of any of the Corporations designated by the president and chief executive officer of such Corporation as eligible to participate in the Plan.
"Member" means a Director who elects to participate in the Plan.
"Share" means a common share of Parentco and such other share as is added thereto or substituted therefor as a result of amendments to the articles of Parentco, a reorganization or otherwise.
"Trading Day" means any date on which the XXXXXXXXXX is open for the trading of Shares.
6. The Plan includes the following terms:
a) A Member will be permitted to elect to receive each of his or her aggregate Annual Board Retainer and aggregate Attendance Fees paid by the Corporation to a Director in a financial year for service on a Board, in the form of:
i) all cash;
ii) 1/2 in cash and 1/2 in Deferred Share Units ; or
iii) all in Deferred Share Units.
b) The number of Deferred Share Units granted will be calculated with respect to a Director's aggregate Annual Board Retainer and aggregate Attendance Fees by quarterly dividing the portion of one-quarter of the aggregate Annual Board Retainer and aggregate Attendance Fees payable at that time which is to be paid in Deferred Share Units by the weighted average trading price of a Share on the XXXXXXXXXX for the last five Trading Days of the preceding fiscal quarter.
c) Deferred Share Units will fully vest upon being granted or credited to a Member.
d) Whenever cash dividends are paid on the Shares, additional Deferred Share Units will be credited to each Member's Deferred Share Unit Account. The number of such additional Deferred Share Units will be calculated by dividing the dividends that would have been paid to such Member if the Deferred Share Units in the Member's Deferred Share Unit Account had been Shares by the value of a Deferred Share Unit on the date on which the dividends were paid on the Shares.
e) In the event of any stock dividend, stock split, combination or exchange of Shares, merger, consolidation, spin-off or other distribution (other than normal cash dividends) of Parentco assets to shareholders, or any other change affecting the Shares, subject to paragraph (k), such proportionate adjustments, to reflect such change or changes, shall be made with respect to the number of Deferred Share Units outstanding under the Plan.
f) Deferred Share Units will not be payable until after a Member's retirement or death. Retirement is considered to occur on the date the Member is no longer any of a Director or an employee of any of the Corporations or an Affiliate.
g) The value of Deferred Share Units, net of applicable withholdings, shall be payable after the earlier of (i) the Member's death and (ii) the effective date of their retirement.
h) After the Member's retirement or death he or she, or in the case of death, their legal representative, will be permitted to elect a redemption date within the period following the Member's retirement or death and ending on XXXXXXXXXX of the first calendar year after the Member's retirement or death.
i) The value of a Deferred Share Unit on a redemption date will be the weighted average trading price of a Share on the XXXXXXXXXX for the last five trading days immediately before that date.
j) The payment owing in respect of the Deferred Share Unit will be paid in cash, net of applicable withholdings, as soon as practicable after the election, provided that in any event such payment date shall be no later than December 31 of the first calendar year after the Member's retirement or death.
k) No amount will be paid to, or in respect of, a Member under the Plan, or pursuant to any other arrangement to compensate for a downward fluctuation in the price of Shares, nor will any other form of benefit be conferred upon, or in respect of a Member for such purpose.
l) The terms of the Plan will provide that the board of XXXXXXXXXX can unilaterally amend or terminate the Plan at any time except with respect to rights that have accrued to a Member at the date of the amendment or termination. Any amendment or termination of the Plan shall be such that the Plan continuously meets the requirements of paragraph 6801(d) of the Income Tax Regulations ("Regulations") or any successor provision thereto.
m) The Corporations will be responsible for their proportionate share of all costs relating to the operation and administration of the Plan.
Purpose of the Proposed Plan
The purpose of the proposed Plan is to promote a greater alignment of interests between Members and the shareholders of the Corporations.
The tax account number of XXXXXXXXXX is XXXXXXXXXX income tax returns are filed at the XXXXXXXXXX Taxation Office.
The tax account is XXXXXXXXXX is XXXXXXXXXX. The tax account of XXXXXXXXXX is XXXXXXXXXX tax returns are filed at the XXXXXXXXXX Taxation Office.
To the best of your knowledge and the knowledge of the Corporations, none of the issues involved in this request for an advance income tax ruling:
a) is in an earlier return of any of the Corporations or of a person related to any of the Corporations;
b) is being considered by a tax services office or tax centre in connection with a previously-filed return of any of the Corporations or of a person related to any of the Corporations;
c) is under objection by any of the Corporations or by a person related to any of the Corporations;
d) is before the courts; or
e) is the subject of a ruling previously issued by the Income Tax Rulings Directorate to any of the Corporations.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed plan and purpose of the proposed plan, and provided that the terms of the Plan are as described above, we rule as follows:
A. The Plan will not 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. Except for those amounts identified in Rulings D and E below, no amount will be included pursuant to section 3, subsection 5(1), section 6, paragraph 56(1)(a) or subparagraph 115(1)(a)(i) of the Act in the income of a Member by reason only of the implementation and operation of the Plan. For greater certainty, no amount will be included pursuant to paragraph 6(1)(a) of the Act in the income of a Member in respect of the payment by the Corporations of the costs relating to the administration of the Plan.
D. When cash is received in satisfaction of a resident Member's Deferred Share Units as described in 6(j) above, the resident Member will include the amount paid, before any applicable withholding taxes, in his or her income under paragraph 6(1)(c) of the Act.
E. When cash is received in satisfaction of a non-resident Member's Deferred Share Units as described in 6(j) above, the non-resident Member will include the amount, to the extent attributable to services rendered in Canada, paid, before any applicable withholding taxes, in his or her income under paragraph 6(1)(c) and subparagraph 115(1)(a)(i) of the Act.
F. Any amount receivable by a Member under the Plan at the time of the Member's death will constitute a right or thing for the purposes of subsection 70(2) of the Act.
G. The Plan will be a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations and will therefore be exempted from the definition of a "salary deferral arrangement", as contained in subsection 248(1) of the Act.
H. Subject to paragraph 18(1)(a) and section 67 of the Act, any amount referred to in rulings D and E above that is paid by XXXXXXXXXX in a particular year in respect of a Member who is a Director or employee of the payer will be deductible by the payer in accordance with section 9 of the Act.
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 Plan is implemented by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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