2001 Ruling 2001-0090193 - DEFERRED SHARE UNIT PLAN-BONUS ACCRUING

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:

Does the Plan Extension (as defined) meet the requirements of paragraph 6801(d) of the Regulations?

Position:

Yes

Reasons:

All of the requirements of the paragraph have been met.

XXXXXXXXXX 2001-009019

Attention: XXXXXXXXXX

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: XXXXXXXXXX, Deferred Share Unit Plan

This is in reply to your letter of XXXXXXXXXX in which you ask for an advance income tax ruling on behalf of the above taxpayer. A copy of the Plan was submitted with your request.

DEFINITIONS

For the purpose of this ruling request, the following terms have the meanings specified:

(a) "Account" means the account maintained for record-keeping purposes by the Company in the name of each Participant composed of all Units credited to the Participant after the Effective Date including Units that have not been redeemed or terminated in accordance with the terms of the Plan Extension;

(b) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1. as amended to the date hereof;

(c) "Award Date" means, unless otherwise determined by the Committee, not later than XXXXXXXXXX Business Days following approval of a Bonus;

(d) "Beneficiary" means a dependant or relation of the Participant who will acquire the Participant's rights under the Plan Extension after the death of the Participant;

(e) "Board" means the board of directors of the Company and "board" may mean the "Board" or the board of a Subsidiary as the context requires;

(f) "Bonus" means an Executive's annual bonus for a particular year, and which is awarded in the year following the particular year;

(g) "Business Day" means any day, other than a Saturday or a Sunday, on which the XXXXXXXXXX Stock Exchange is open for trading;

(h) "Cash Equivalent" means the amount of money in the Relevant Currency equal to the number of Units multiplied by the average closing trading price of the Shares on the Relevant Exchange on the XXXXXXXXXX Business Days immediately preceding the date of redemption of the Units;

(i) "Committee" means the XXXXXXXXXX of the Board or such other committee or persons designated by the Board, including the Board itself, for the purpose of administering the Plan;

(j) "Company" means XXXXXXXXXX;

(k) "Effective Date" means the date of this advance income tax ruling;

(l) "Executive" means a selected officer of the Company and its Subsidiaries, and includes both residents and non-residents of Canada;

(m) "Participant" means an Executive who elects to receive Units under the Plan Extension;

(n) "Plan" means the XXXXXXXXXX;

(o) "Plan Extension" means the part of the Plan that applies to elections by Executives to receive Units under the Plan;

(p) "Regulations" means the Income Tax Regulations;

(q) "Relevant Currency", in relation to any Participant who is a resident of Canada, means the Canadian Dollar and, in relation to any other Participant, means the currency of such country in which such Participant is located if there is a Relevant Exchange in such country on which the shares are listed, otherwise, the "Relevant Currency" in relation to such Participant also means the Canadian Dollar;

(r) "Relevant Exchange", in relation to any Participant who is a resident of Canada, means the XXXXXXXXXX Stock Exchange (the "XXXXXXXXXX") and successor thereto and, in relation to any other Participant, means the stock exchange in the country in which such Participant is located if the shares are listed on such stock exchange, otherwise the "Relevant Exchange" in relation to such Participant also means the XXXXXXXXXX;

(s) "Retirement" means retirement, including early retirement, under the pension plan applicable to the Executive;

(t) "Shares" means common shares in the capital of the Company;

(u) "Subsidiary" means a subsidiary of the Company within the meaning of the Canada Business Corporations Act;

(v) "Termination" means the occurrence of any act or event whether pursuant to an employment agreement or otherwise, including without limitation dismissal for cause, dismissal without cause or resignation, which actually or effectively causes or results in the person's ceasing, for whatever reason, to be an employee of the Company or any of its Subsidiaries;

(w) "Unit" means a deferred stock unit that is issued under the Plan Extension, and which upon the meeting of all of the conditions specified herein, is redeemable for its Cash Equivalent in accordance with the provisions of the Plan Extension; and

(x) "Unitholder" means a Participant who has been issued Units under the Plan Extension.

Our understanding of the facts and the proposed Plan Extension is as follows:

FACTS

1. The Company is continued under the Canada Business Corporations Act, and is a public corporation and a taxable Canadian corporation as those terms are defined in subsection 89(1) of the Act. The head office and mailing address of the Company is:

XXXXXXXXXX.

The Company's business number is XXXXXXXXXX . It files its tax returns at the XXXXXXXXXX Taxation Centre, and is served by the XXXXXXXXXX Tax Services Office. Its common shares are listed and traded on the XXXXXXXXXX.

2. The Company's primary business is that of XXXXXXXXXX.

3. The Plan is comprised of a plan text, written agreements between the Company and each participant and election forms acknowledging participation therein. The Plan was established on XXXXXXXXXX by the Company to provide deferred stock units in respect of remuneration to be paid to directors, and in respect of Bonuses to be paid to Executives. The portion of the Plan that enables directors to elect to receive such remuneration in the form of deferred stock units is already in place. However, the portion of the Plan (the "Plan Extension") that enables Executives to elect to receive such Bonuses in the form of Units will not come into effect until approved by the Board.

PROPOSED TRANSACTION

4. The Board proposes to approve the Plan Extension upon receipt of this advance income tax ruling. The Plan Extension will be unfunded. The terms of the Plan Extension as noted below.

5. An Executive may elect to receive XXXXXXXXXX% of that proportion of the Executive's Bonus, which the Committee determines may be the subject of an election, in the form of Units.

6. The election must be made as follows:

• In respect of a XXXXXXXXXX Bonus (to be awarded in XXXXXXXXXX), the election must be made by XXXXXXXXXX; and
• In all other cases, the election must be made within the XXXXXXXXXX period of the calendar year preceding the calendar year in which such Bonus is awarded.

7. Units will be credited to the Account of each Participant, and will be evidenced by an agreement in writing between the Participant and the Company entered into within the XXXXXXXXXX Business Days following each Award Date.

8. The number of Units (including fractional Units) to be credited to an Account is determined by dividing the amount of a Bonus in the Relevant Currency that a Participant has elected to have paid as Units by the average closing trading price in the Relevant Currency of the Shares on the Relevant Exchange on the XXXXXXXXXX Business Days immediately preceding the Award Date.

9. Units will be redeemable after the Retirement, Termination or death of the Unitholder.

10. In the event of the Retirement of a Unitholder, all Units in the Unitholder's Account will be redeemable by the Unitholder, anytime during the period from the date of Retirement to the end of the calendar year following the date of Retirement, for their Cash Equivalent. If the Units are not redeemed within XXXXXXXXXX Business Days prior to the end of that period by written notice signed by the Unitholder or his duly authorized representative, they will expire and terminate and the Cash Equivalent of all unredeemed Units remaining in the Unitholder's Account will be paid by cheque, net of applicable withholdings, to such Unitholder.

11. In the event of the Termination of an Executive who is a Unitholder, all Units in such Unitholder's Account will be redeemable by such Unitholder, for XXXXXXXXXX days from the date of Termination, for their Cash Equivalent. If the Units are not redeemed within XXXXXXXXXX Business Days prior to the end of that period by written notice signed by the Unitholder or his duly authorized representative, they will expire and terminate and the Cash Equivalent of all unredeemed Units remaining in the Unitholder's Account will be paid by cheque, net of applicable withholdings, to such Executive. No further Units will be issued to the Executive and no further credits of Units to such individual's Account will be made. Should any Executive have elected to receive any future Bonus in Units, the Termination will constitute a revocation of such election.

12. In the event of the death of a Unitholder, all Units in the Unitholder's Account will be redeemable, by the Unitholder's legal representative or Beneficiary for XXXXXXXXXX from the date of death, for their Cash Equivalent. If the Units are not redeemed within XXXXXXXXXX Business Days prior to the end of that period by written notice signed by the Unitholder's legal representative or Beneficiary, they will expire and terminate and the Cash Equivalent of all unredeemed Units remaining in the Unitholder's Account will be paid by cheque, net of applicable withholdings, to such Unitholder's legal representative or Beneficiary.

13. No amount will be paid to, or in respect of, an Executive to compensate for the downward fluctuation in the price of Shares.

14. In any case, all amounts payable to a Unitholder by virtue of 10, 11 or 12 above will be paid by the end of the first calendar year commencing after the time of Retirement, Termination or death.

15. Where, on the last day of each fiscal quarter or as soon as possible thereafter, the Company determines that dividends have been declared and paid on Shares for such fiscal quarter, each Unitholder's Account will be credited, within XXXXXXXXXX Business Days of the applicable fiscal quarter end, with an additional number of Units equal to the number of Units in the Unitholder's Account on the record date for such dividend multiplied by the rate of dividends declared and paid on Shares for a fiscal quarter expressed as a percentage based on the closing Share price on the Relevant Exchange on the record date.

16. Subject to 13 above, and to any relevant resolutions of the Board, reasonable and appropriate adjustments may be made by the Committee to preserve the intended benefits of the Plan Extension for Participants with respect to Units issued or to be issued in order to adjust for the effect of subdivision or consolidation of the Shares, payment of dividends in stock (other than dividends in the ordinary course), reclassification or conversion of the Shares, recapitalization, reorganization, change of control or any other event which, in the judgment of the Committee, necessitates action by way of adjustment to the terms of Units issued or to be issued.

17. The Board may at any time suspend or terminate the Plan Extension and may amend it provided that the amendment, suspension or termination of the Plan Extension does not impair any of the rights or obligations under any Unit previously granted without the consent of the Unitholder thereof and notification of the amendment is sent to Unitholders of outstanding Units previously issued if the amendment is applicable to such Units. Notwithstanding the foregoing, any amendment, suspension or termination of the Plan Extension shall be such that the Plan Extension continuously meets the requirements of paragraph 6801(d) of the Regulations, or any successor provision thereto.

18. The costs related to the administration of the Plan Extension will be borne by the Company.

PURPOSE OF THE PROPOSED TRANSACTION

19. The Plan Extension is intended to provide Executives with the opportunity to acquire share equivalent units convertible to cash upon cessation of employment. Acquiring such units will allow Executives to participate in the long-term success of the Company and will promote a greater alignment of interests between the Executives and the shareholders of the Company.

OTHER INFORMATION

20. To the best of your knowledge and that of the Company, none of the issues involved in this ruling request are:

a) in an earlier return of the Company or a related person,

b) being considered by any tax services office or tax centre in connection with a previously filed tax return of the Company or a related person,

c) the subject matter of any notice of objection filed pursuant to the Act by the Company or a related person,

d) before the courts, nor

e) the subject of a ruling previously issued by this Directorate.

RULINGS GIVEN

Provided that the above statement of facts and description of the proposed Plan Extension are accurate and constitute a complete disclosure of all relevant facts and terms of the proposed Plan Extension, and provided that the Plan Extension is approved by the Board as described in 4 above, we rule as follows:

A. The Plan Extension will be a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations and will therefore be excluded from the definition of a "salary deferral arrangement" as that term is defined in subsection 248(1) of the Act.

B. The Plan Extension will not constitute an "employee benefit plan" or a "retirement compensation arrangement" as those terms are defined in subsection 248(1) of the Act.

C. An amount received by a Unitholder while the Unitholder is a resident of Canada, in accordance with 10 or 11 above, including applicable withholdings, will be included in the income of the Unitholder in the year of receipt by virtue of subsection 5(1) of the Act.

D. An amount received by a Unitholder while the Unitholder is a non-resident of Canada, in accordance with 10 or 11 above, including applicable withholdings, will be included in the income of the Unitholder in the year of receipt by virtue of subparagraph 115(1)(a)(i) of the Act to the extent that the amount is attributable to duties performed in Canada.

E. No amount will be included in the income of a Unitholder in respect of the payment by the Company of the costs relating to the administration of the Plan Extension.

F. An amount payable under the Plan Extension to a Unitholder's legal representative or Beneficiary as a result of the Unitholder's death will constitute a "right or thing" held by the deceased Unitholder at the time of death for the purposes of subsection 70(2) of the Act.

G. Subject to section 67 and paragraph 18(1)(a) of the Act, an amount paid by the Company in respect of Executives formerly employed by the Company, in accordance with 10, 11 or 12 above, including applicable withholding taxes, will be deductible by the Company in accordance with section 9 of the Act in the year paid.

The above advance income tax rulings, which are based on the Act and Regulations in their 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 70-6R4 Advance Income Tax Rulings, dated January 29, 2001, and are binding on the Canada Customs and Revenue Agency provided that the proposed Plan Extension is approved on or before XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate