13 December 2001 Internal T.I. 2001-0092337 - STOCK BONUS PLAN AS AN EPB

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Is the arrangement an EBP?

Position: Yes.

Reasons: The Plan is structured as an EBP. In particular, the shares provided to the employees under the plan are always acquired on the open market by the trustee

							December 13, 2001

	XXXXXXXXXX  TAX SERVICES OFFICE			HEADQUARTERS
	XXXXXXXXXX 							W.C. Harding
	Director							(613) 957-8953

Attention:  XXXXXXXXXX
                  Large File Case Manager
	                  XXXXXXXXXX                 				2001-010175

		XXXXXXXXXX 

This is in reply to your memorandums of July 12 and October 16, 2001, in which you forwarded a request from XXXXXXXXXX for a technical interpretation in respect of the above-noted plan.

As you are aware, written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Accordingly, we are providing our comments on this matter to your office.

Our comments

Definitions and Abbreviations

In this reply, 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) "Arm's Length" means "arm's length" as that phrase is used in subsection 251(1) of the Act;

XXXXXXXXXX

(d) "Board" means the Board of Directors of the Employer;

(e) "CCRA" means: the Canada Customs and Revenue Agency;

(f) "Committee" means XXXXXXXXXX;

(g) "Employee" means an employee of the Employer or a subsidiary thereof;

(h) "Employer" means: XXXXXXXXXX;

(i) "Group" means the group composed of the Parent, the Employer and other affiliated companies of the Parent;

(j) "Parent" means XXXXXXXXXX;

(k) "Participants" means key senior executives of the Group that participate in the Plan where participation is offered at the discretion of the Participant's employer and is endorsed by the Committee;

(l) "Plan" means: The Restricted Share Plan offered by the Parent to certain key senior executives of XXXXXXXXXX (the Participants) where Participation in the Plan is at the discretion of the Participant's employer and all proposals for awards are endorsed by XXXXXXXXXX;

(m) "Public Corporation" means a "public corporation" as defined in subsection 89(1) of the Act;

(n) "Regulations" means: The Income Tax Regulations;

(o) "Share" means Ordinary US$XXXXXXXXXX shares of the Parent;

(p) "Taxable Canadian

Corporation" means a "public corporation" as defined in subsection 89(1) of the Act; and

(q) "Trust" means XXXXXXXXXX;

Our understanding of the Plan is as follows:

1. The Plan is designed to provide a clear link between individual performance and that of the Group, and to align the interests of Employees more closely with those of shareholders. Other purposes of the Plan are to attract, retain and motivate highly valued executives.

The Plan is also designed to reward the delivery of sustained financial growth of the Parent. As Canadian Participants participate in generating global growth through their efforts with the Employer and its subsidiaries, and allow Canadian Participants to be rewarded for their participation in the global success of the Parent.

2. Under the Plan, Participants are conditionally awarded Shares. The Share award is in addition to and not in lieu of regular compensation received by each Participant for a particular year. The Shares are acquired and held by the Trust. The Trust is a discretionary trust under which all Participants in the Plan are potential beneficiaries.

3. Shares are purchased by the Trustee on the open market, at the prevailing market price, in respect of Participants employed by the Employer. The Employer remits the necessary funds to the Trustee to purchase the Shares.

4. The Employer will set a range for the awards by Employee grade level. When awarding Shares under the Plan to Participants, amounts are discretionary and are set as a flat amount. Proposed awards are first submitted by the Employer to the Committee and then to the Employer's Board of Directors for final approval.

5. Shares acquired by the Trustee are allocated to Participants based on their award entitlement. The Trustee maintains a separate account for each Participant. Title and all incidents of beneficial ownership of the Shares remain with the Trustee while the Shares remain in the Trust. There is no arrangement whereby a Participant may transfer, assign, pledge, charge or otherwise dispose of any Shares held by the Trustee on the Participant's behalf while the Shares remain in the Trust. Furthermore, the Participant cannot use any Shares held in the Participant's name by the Trustee as part of a forward selling or hedging arrangement where the value of the Shares at the date of release of the Shares to the Participant is guaranteed.

6. All dividends received by the Trustee with respect to Shares held are received as Shares (i.e. stock dividends are received, not cash dividends). Shares received by the Trustee as dividends are allocated between Participants based on total number of Shares allocated at the dividend date and are for the conditional benefit of Participants on vesting.

7. A Participant's entitlement to the Shares is subject to the attainment by the Group of certain performance conditions, determined at the date of the award, and is subject to continuing employment within the Group to the date of the Share release. If the conditions described in 8. below, are met, Shares are released to the Participant on the fifth anniversary of the date of the award. At the date of the release, title to the Shares passes to the Participant and the Participant is free to retain or sell the Shares at the Participant's discretion.

8. Attached to the submission was a summary of the Plan that provided additional details of the conditions, which must be met by the Group. In summary, the conditions are based on the Group's attainment of total shareholder return targets and require the Group to exceed specified shareholder return targets of competitors (the "Benchmark"). If the targets are met, the following consequences will result:

a. If the "Total Shareholder Return" exceeds the Benchmark and is in the top quartile at the end of the third year of the Plan, then all Share awards will vest at that time and an additional XXXXXXXXXX % of the original number of Shares awarded will be added;

b. If the Total Shareholder Return exceeds the Benchmark but is not in the top quartile at the end of the third year of the Plan, then all Share awards vest at that time but no additional shares will be added;

c. If the Total Shareholder Return does not exceed the Benchmark at the end of the third year of the Plan, but does exceed the Benchmark at the end of the fourth year of the Plan, then all Share awards vest at the end of the fourth year;

d. If the Total Shareholder Return does not exceed the Benchmark at the end of the third or fourth years of the Plan but does exceed the Benchmark at the end of the fifth year, then all Share awards vest at the end of the fifth year; and

e. If the Total Shareholder Return does not exceed the Benchmark by the end of the fifth year of the Plan, no shares will be awarded.

In all instances, any Shares awarded will by retained by the Trust until the fifth year of the Plan, with release being dependent on the Participant remaining with the Group.

9. If a Participant resigns or is dismissed from a Group company participating in the Plan, any Shares allocated to the Participant within the Trust will normally be forfeited. In other circumstances, such as retirement, redundancy or death, release of any or all Shares to the Participant and the timing of such release are solely at the discretion of the Committee.

10. Where a Participant's entitlement to Shares is forfeited, the Shares will be held by the Trustee, as beneficial owner. The Shares are then available to the relevant Group company for re-allocation to other Participants or to offset the cost of a Share purchase by the Trustee on behalf of the Group company's Participants. For tracking purposes, such Shares are allocated within the Trust to an account referred to as the "Employer's Spare Share Account".

11. An annual management fee is charged by the Trustee and is apportioned to each of the Group companies based on the number of employees of each company participating in the Plan.

12. Employees became Participants in the Plan for the XXXXXXXXXX and subsequent taxation years.

13. The Participants deal at arm's length with the Employer and other companies in the Group.

Provided the above description of the Plan is accurate and constitutes a complete disclosure of all the relevant facts, and provided the Plan is being administered as described, in our view:

a. The Plan constitutes an "employee benefit plan" as defined in subsection 248(1) of the Act.

b. In accordance with the provisions of paragraph 6(1)(g) of the Act, a Participant must include in the Participant's income for any year, each amount that is received out of or under the Plan in that year and in particular, an amount equal to the fair market value of any Shares received in the year.

c. Subject to paragraph 18(1)(a) and section 67 of the Act, a deduction may be made as provided in subsection 32.1(1) of the Act, by the Employer or by a Canadian subsidiary, as the case may be, in respect of contributions that are made by the Employer or the Canadian subsidiary as the case may be.

d. Subject to paragraph 18(1)(a) and section 67 of the Act, all costs referred to in paragraph 11. above, that are incurred by the Employer or a Canadian subsidiary, as the case may be, will be deductible in accordance with section 9 of the Act.

e. Any amounts received out of or under the Plan by the Employer or by a Canadian Subsidiary must be included in the income of the recipient in accordance with paragraph 12(1)(n.1) of the Act.

For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

cc Claude Englehart
Director
Technical Applications and Valuations Division
Compliance Programs Branch