2001 Ruling 2001-0101183 - DEFERRED SHARE UNIT PLAN - EXECUTIVES

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:

1) Will the creation of a Deferred Share Unit Plan result in an SDA?

2) Will the amendments to the existing Performance Plan result in an SDA?

Position:

1) No.

2) No.

Reasons:

1) Requirements of Regulation 6801(d) are met.

2) Requirements of Regulation 6801(d) are met.

XXXXXXXXXX 		2001-010118

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling - Senior Executives' Deferred Share Unit Plan
XXXXXXXXXX ("Holdco")
XXXXXXXXXX ("Subco")

This is in reply to your letter of XXXXXXXXXX in which you ask for an advance income tax ruling on behalf of Holdco and Subco (collectively, the "Companies").

DEFINITIONS

For the purposes of this request for an advance tax ruling, the relevant definitions are the following:

(a) "Act" means the Income Tax Act (Canada), as amended from time to time.

(b) "Affiliate" means an affiliate of either of the Companies as that term is defined in paragraph 3 of Canada Customs and Revenue Agency's ("CCRA's") Interpretation Bulletin IT-337R3, Retiring Allowances.

(c) "Beneficiary" means the person who at the time of an Eligible Executive's death is entitled, under the terms of the DSU Plan and applicable law, to receive the value of any DSUs standing to the credit of the Eligible Executive at that time.

(d) "Board" means those individuals who serve from time to time as the Board of Directors of Holdco.

(e) "Change of Control" means:

(i) the initial acquisition by any person, or any persons acting jointly or in concert (as determined by the Securities Act (XXXXXXXXXX )), whether directly or indirectly, of voting securities of Holdco which, together with all other voting securities of Holdco held by such persons, constitutes, in the aggregate, more than 20% of all outstanding voting securities of Holdco;

(ii) an amalgamation, arrangement or other form of business combination of Holdco with another corporation which results in the holders of voting securities of that other corporation holding, in the aggregate, more than 20% of all outstanding voting securities of the corporation resulting from the business combination;

(iii) a sale, disposition, lease or exchange to or with another person or persons (other than a Related Corporation) of property of Holdco representing 50% or more of the net book value of the assets of Holdco, determined as of the date of the most recently published audited financial statements of Holdco; or

(iv) a change in the composition of the Board over any twelve month period such that more than 50% of the persons who were directors of Holdco at the beginning of the period are no longer directors at the end of the period, unless such change is a consequence of normal attrition.

(f) "Committee" means the XXXXXXXXXX of the Board of Directors of Holdco or such persons or other committee of the Board of Directors of Holdco as may be designated by the Board.

(g) "Deferred Share Unit", or "DSU" means a unit credited by Subco to an Eligible Executive by way of a bookkeeping entry in the books of Subco, pursuant to the DSU Plan, the value of which, on a particular date, shall be equal to the Fair Market Value at that date.

(h) "Disability Date" means the date as of which an Eligible Executive commences receiving or is eligible to receive long term disability benefits under Subco's long term disability plan.

(i) "DSU Plan" shall have the meaning ascribed thereto in the section entitled PROPOSED TRANSACTIONS AND PLANS AND AMENDMENTS below.

(j) "Eligible Executive" means such employees of Subco as the Committee may designate from time to time as eligible to participate in the DSU Plan.

(k) "Entitlement Date" with respect to an Eligible Executive who had a Termination Date, shall be the day specified by the Eligible Executive in an election filed with Subco no later than XXXXXXXXXX of the calendar year commencing immediately after the Eligible Executive's Termination Date, which date shall not be before the later of the date on which the election is filed with Subco and 30 days after the Eligible Executive's Termination Date and shall not be later than XXXXXXXXXX of the calendar year commencing immediately after the Eligible Executive's Termination Date. Where an Eligible Executive fails to make an election within the permissible period set out in this definition, his or her Entitlement Date shall, subject to the subsequent paragraphs of this definition, be XXXXXXXXXX of the calendar year commencing immediately after the Eligible Executive's Termination Date.

Notwithstanding the foregoing, if an Eligible Executive's Entitlement Date falls between the record date and the payment date for dividends on Shares, such Eligible Executive's Entitlement Date shall be deemed to be the date immediately following the dividend payment date.

Notwithstanding the foregoing, if the Committee is unable to calculate the value of DSUs credited to an Eligible Executive's account due to the lack of necessary data, such Eligible Executive's Entitlement Date shall be the next following trading day on which such data is available to the Committee.

Notwithstanding the foregoing, if, on an Eligible Executive's Entitlement Date, such Eligible Executive is, in the opinion of the Committee, in possession of material undisclosed information regarding Holdco and/or the Shares, the Eligible Executive's Entitlement Date shall be delayed until the earliest of the date on which (i) the Committee is satisfied the Eligible Executive is no longer in possession of any such material undisclosed information, or (ii) XXXXXXXXXX of the year following the year of the Eligible Executive's Termination Date.

In any event, DSUs will be redeemed and amounts payable under the DSU Plan to or in respect of an Eligible Executive will be paid to the Eligible Executive or the Eligible Executive's Beneficiary on or before XXXXXXXXXX of the calendar year immediately following the year in which the Eligible Executive's Termination Date occurred.

(l) "Fair Market Value" means, with respect to any particular date, the average closing price of a Share on XXXXXXXXXX Stock Exchange, or if the Shares are not listed on XXXXXXXXXX Stock Exchange, on such other stock exchange in Canada on which the Shares are listed, or if the Shares are not listed on any stock exchange, then on the over-the-counter market, on the ten trading days prior to that date on which at least one board lot of the Shares was traded.

(m) "Performance Plan" means the Subco Performance Plan XXXXXXXXXX.

(n) "PIP" means the Performance Incentive Plan applicable to an Eligible Executive for a year, pursuant to which the Eligible Executive may receive cash awards, based on corporate performance and the Eligible Executive's individual contribution to the Companies' consolidated financial results measured against predetermined objectives.

(o) "Related Corporation" means a corporation related to Holdco for the purposes of the Act and, unless inconsistent with the context, includes Subco.

(p) "Share" means a common share, without nominal or par value, of the capital stock of Holdco.

(q) "Termination Date" means the earliest date on which both of the following conditions are met: (1) the Eligible Executive has ceased to be employed by Holdco, Subco or any Affiliate for any reason whatsoever, and (2) the Eligible Executive is not a member of the Board or of the board of directors of an Affiliate.

Our understanding of the facts, proposed transactions, plan and amendments and the purpose of the proposed plan and amendments is as follows:

FACTS

1. Holdco and Subco are incorporated under the laws of Canada. Holdco is a "public corporation" and a "taxable Canadian corporation" as those terms are defined in subsection 89(1) of the Act. Subco became a wholly-owned subsidiary of Holdco on XXXXXXXXXX . Subco is a "taxable Canadian corporation" as defined in subsection 89(1) of the Act. The Shares of Holdco are principally traded on XXXXXXXXXX Stock Exchange. The Companies both have a fiscal year-end of XXXXXXXXXX.

2. XXXXXXXXXX.

3. The mailing address of the Companies is:

XXXXXXXXXX.

4. The tax account number of Holdco is XXXXXXXXXX and the tax account number of Subco is XXXXXXXXXX. Both companies file their income tax returns at the XXXXXXXXXX Taxation Centre.

PROPOSED TRANSACTIONS AND PLANS AND AMENDMENTS

The DSU Plan

5. The Companies will establish a new incentive plan for Eligible Executives (the "DSU Plan") effective XXXXXXXXXX, subject to receipt of an advance tax ruling from CCRA that the DSU Plan is a "prescribed plan or arrangement" as described in paragraph 6801(d) of the Income Tax Regulations ("Regulation 6801(d)"). The DSU Plan will comprise a plan text and written agreements between each Eligible Executive and his or her employer setting out the terms of the Eligible Executive's participation in the DSU Plan. A copy of the proposed text of the DSU Plan was submitted with the ruling request and revisions were submitted by facsimile on XXXXXXXXXX.

6. The relevant features of the DSU Plan are as follows:

(a) The DSU Plan will be administered by the Committee.

(b) Each Eligible Executive will be permitted to elect in respect of a calendar year whether to participate in the DSU Plan. If the Eligible Executive elects to participate in the DSU Plan, he/she may choose one of the XXXXXXXXXX following options: XXXXXXXXXX DSUs already granted to an Eligible Executive pursuant to the DSU Plan and Shares owned by or for the benefit of the Eligible Executive are taken into account in determining attainment of share ownership requirements.

Notwithstanding the Eligible Executive's election as described above, the Committee may in its sole discretion decline to award DSUs to an Eligible Executive in respect of his/her participation in the DSU Plan in a particular year or require the Eligible Executive, notwithstanding his or her election, to receive a percentage, as specified by the Committee, of the Eligible Executive's potential incentive compensation award calculated in accordance with the PIP in DSUs under the DSU Plan.

With respect to all years commencing after XXXXXXXXXX, the Eligible Executive will be required to make his/her election before the commencement of the year (i.e., performance period) in respect of which the election is made. Once made, an election would be irrevocable on the part of the Eligible Executive. Elections under the DSU Plan for the XXXXXXXXXX calendar year will be dependent upon the Companies receiving an income tax ruling from CCRA that the DSU Plan is a "prescribed plan or arrangement" as described in Regulation 6801(d). In particular, Eligible Executives were required to make their election for the XXXXXXXXXX calendar year on or before XXXXXXXXXX. The election was made in writing and expressly provided that the participation of the Eligible Executive in the DSU Plan and the award of DSUs thereunder was conditional upon the Companies receiving the ruling as described herein.

An Eligible Executive who transfers in a year from employment with Subco to employment with another Related Corporation will continue to be eligible to make elections and receive awards under the DSU Plan and such a transfer will not constitute a cessation of employment entitling the Eligible Executive to receive the value of his/her DSUs.

(c) Each Eligible Executive who has elected to participate in the DSU Plan for a particular calendar year will be eligible to receive DSUs subject to meeting the applicable performance criteria for the year in question. Specifically, after the end of a calendar year, the Committee will, subject to its discretion to either decline to award DSUs to an Eligible Executive in respect of any calendar year or to require the Eligible Executive to receive part or all of his/her incentive compensation under the PIP for the year in the form of DSUs irrespective of the Eligible Executive's election under the DSU Plan, (i) determine the amount that would have been awarded to the Eligible Executive under the PIP as if all of his/her incentive compensation for the relevant calendar year were provided under that plan; (ii) multiply that amount by the percentage of the Eligible Executive's incentive compensation for such year that he/she had elected in the previous year to receive under the DSU Plan (or the percentage determined by the Committee, as applicable); (iii) divide the product thereof by the Fair Market Value determined as of the last business day of the relevant calendar year to obtain the number of DSUs to be awarded to the Eligible Executive; and (iv) credit such number of DSUs to the Eligible Executive's account under the DSU Plan. For clarity, in the case of the XXXXXXXXXX calendar year, the Fair Market Value used for this purpose would be determined as of XXXXXXXXXX.

(d) In addition to DSUs awarded as described in 6(c) above, the Committee may award DSUs to an Eligible Executive in order to facilitate attainment of Share ownership requirements established by Holdco or Subco. Subject to limits which are specified in the DSU Plan, an Eligible Executive may be granted XXXXXXXXXX. DSUs awarded as described herein would have a value equal to the Fair Market Value on the date of the award except that such value would be determined based on the closing price of a Share on the actual date of the award rather than on the average closing price of a Share on the ten trading days prior to that date as otherwise provided under the definition of Fair Market Value and after the date of grant shall be valued based on Fair Market Value as defined above.

(e) In addition to DSUs awarded as described in 6(c) and 6(d) above, the Committee shall have the discretion to award an Eligible Executive with additional DSUs. Such additional DSUs may be awarded by the Committee regardless of the Eligible Executive's election described above, the award of matching DSUs described in 6(d) above or the election described below relating to the Performance Plan. Such discretionary DSUs may be granted by the Committee in recognition of an Eligible Executive's service with Subco or his or her position at Subco.

(f) DSUs awarded as described in 6(c) above will be fully vested upon being awarded to an Eligible Executive. Except as described as follows, DSUs awarded as described in 6(d) above will not become vested and will be subject to forfeiture as a consequence of termination of employment or disposition by the Eligible Executive of the Shares in respect of which such DSUs were granted within the XXXXXXXXXX period from the date such DSUs are granted and thereafter will be fully vested, and DSUs awarded as described in (e) above will be subject to such vesting requirements as the Committee specifies in the written instrument issued by Subco to the Eligible Executive documenting such award of discretionary DSUs. Except as described as follows, DSUs awarded to an Eligible Executive pursuant to the Performance Plan Amendments (as defined and described below), as well as cash awards made pursuant to the Performance Plan Amendments, will not become vested and will be subject to forfeiture as a consequence of termination of employment before XXXXXXXXXX and thereafter will be fully vested. Notwithstanding the above, DSUs awarded as described in 6(d) and 6(e) above and DSUs and/or cash awards awarded pursuant to the Performance Plan Amendments will become fully vested and will not be subject to forfeiture following the earlier of (i) a Change of Control, (ii) the Eligible Executive's death, (iii) the Eligible Executive's Disability Date or (iv) the termination of the DSU Plan as described in 6(l) below. Such DSUs may also be immediately vested if the Committee or the President and Chief Executive Officer of Subco determines that such DSUs shall not be subject to vesting requirements. For clarity, DSUs granted as dividend equivalents (described in 6(g) below) will vest at the same time and have the same vesting status as the DSUs to which such dividend equivalent DSUs relate.

(g) In the event that any cash dividend is declared and paid by Holdco on Shares, an Eligible Executive shall be credited with additional DSUs. The number of such additional DSUs will be calculated by dividing the total amount of the dividends that would have been paid to such Eligible Executive if the DSUs credited to the Eligible Executive's account on the dividend record date had been Shares by the Fair Market Value on the date on which the cash dividends were paid on the Shares.

(h) 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 Holdco's assets to shareholders, or any other change in the capital of Holdco affecting the Shares, such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change shall be made with respect to the number of DSUs then recorded in each Eligible Executive's account under the DSU Plan. No amount will be paid and no other benefit will be granted to, or in respect of, an Eligible Executive under the DSU Plan or pursuant to any other arrangement, in order to compensate for a downward fluctuation in the price of Shares.

(i) Subco shall maintain in its books or cause to be maintained an account for each Eligible Executive recording at all times the number of DSUs standing to the credit of the Eligible Executive. Upon payment in satisfaction of DSUs credited to an Eligible Executive in the manner described in 6(j) below, such DSUs shall be cancelled. DSUs, which are forfeited because an Eligible Executive has not met the applicable vesting requirements on his or her Entitlement Date, shall also be cancelled.

(j) The Eligible Executive or the Eligible Executive's Beneficiary shall be entitled, on the Entitlement Date, to redeem the vested DSUs credited to the Eligible Executive's account. On that date, an amount equal to the number of vested DSUs standing to the Eligible Executive's credit on that date, multiplied by the Fair Market Value on the Entitlement Date, shall become payable to the Eligible Executive or his/her Beneficiary, as the case may be. The amount payable to the Eligible Executive (or the Eligible Executive's Beneficiary), shall, in any event, be paid by Subco in cash, net of applicable withholdings, on or before XXXXXXXXXX of the calendar year following the calendar year in which the Eligible Executive's Termination Date occurs.

(k) Except as specifically set out in the DSU Plan, no Eligible Executive or other person shall have any claim or right to any Shares or other benefit in respect of DSUs granted pursuant to the DSU Plan. Neither the DSU Plan nor any award thereunder shall be construed as granting an Eligible Executive a right to be retained as an employee of the Companies or of any of their Affiliates, or a claim or right to any future grants of DSUs. Neither the DSU Plan nor any action taken thereunder shall interfere with the right of the employer of an Eligible Executive to terminate the employment of such Eligible Executive at any time. The payment of any sum of money in cash in lieu of notice of the termination of employment shall not be considered as extending the period of employment for the purposes of the DSU Plan including, without limitation, for vesting purposes. Under no circumstances shall DSUs be considered Shares nor shall they entitle any Eligible Executive or any other person to exercise voting rights or any other rights attaching to the ownership of Shares, nor shall any Eligible Executive or any other person be considered the owner of Shares by virtue of the DSU Plan.

(l) DSU Plan may be amended or terminated in whole or in part at any time by the Board, provided that no such amendment or termination shall, unless required by law, adversely affect the rights of any Eligible Executive with respect to DSUs to which he or she is then entitled under the DSU Plan without the consent of the affected Eligible Executive and any amendment or termination shall be such that the DSU Plan continuously meets the requirements of Regulation 6801(d).

The Performance Plan Amendments

7. In conjunction with the establishment of the DSU Plan, the Companies propose to amend the Performance Plan to provide that, at the election of an Eligible Executive (as described more fully below), the potential performance award payable to an Eligible Executive, if any, under the Performance Plan determined as at XXXXXXXXXX may be paid in the form of DSUs issued in accordance with, and subject to, the terms of the DSU Plan. A copy of the Performance Plan and the proposed amendments thereto (the "Performance Plan Amendments"), were submitted with the ruling request, and revisions were submitted by facsimile on XXXXXXXXXX .

8. The Performance Plan is a cash incentive plan which provides performance awards to eligible employees of Subco based on the cumulative operating income and average return on capital employed of Subco determined over a three-year period. This performance measurement period under the Performance Plan is currently XXXXXXXXX . Performance awards under the Performance Plan are not determined until completion of the performance measurement period and following the determination of cumulative operating income and average return on capital employed over the entire performance measurement period.

9. At present, performance awards under the Performance Plan are clearly not driven by the value of the Shares. XXXXXXXXXX it will be possible for performance awards under the Performance Plan to be based on the value of Shares and thus facilitate a closer alignment between Eligible Executives' incentive compensation and the interests of Holdco's shareholders. Holdco became the shareholder of Subco on XXXXXXXXXX and therefore the existing performance measurement period under the Performance Plan (which continues to XXXXXXXXXX ) overlaps the time during which a relevant share price (i.e., the Fair Market Value) could be used to determine performance awards under the Performance Plan.

10. At present under the Performance Plan, a participant is eligible to receive a total award in XXXXXXXXXX of which is based on the cumulative operating income of Subco over the XXXXXXXXXX performance measurement period and XXXXXXXXXX of which is based on the average return on capital employed determined over the same XXXXXXXXXX period. If cumulative operating income over the XXXXXXXXXX performance measurement period is below a stated threshold amount, the participant will not receive any award with respect to this component of the Performance Plan. Similarly, if average return on capital employed over the XXXXXXXXXX performance measurement period is below a stated threshold amount, the participant will not receive any award with respect to this component of the Performance Plan.

11. The Companies are proposing to amend Section XXXXXXXXXX of the Performance Plan (and consequential amendments to other sections in the Performance Plan) so that the performance measurement period for all participants in that plan will end on XXXXXXXXXX rather than on XXXXXXXXXX. As a consequence of the Performance Plan Amendments, performance awards will be determined based on cumulative operating income and average return on capital employed measured over XXXXXXXXXX and there will be revised threshold amounts for both cumulative operating income and return on capital employed determined over the new performance measurement period. At present, and when the elections described below are made, it is possible that neither of these new thresholds may be attained by XXXXXXXXXX (i.e., at the end of the performance measurement period) and, therefore, it is possible that there would be no performance award payable on XXXXXXXXXX following the proposed XXXXXXXXXX performance measurement period and completion of the vesting period described in 6(f) above relating to the DSU Plan. Except as described below with respect to Eligible Executives who elect to receive their performance award under the Performance Plan in the form of DSUs or where the Committee exercises its discretion to decline to award DSUs, notwithstanding the Eligible Executive's election, participants in the Performance Plan would receive their performance award (if any) under the Performance Plan in XXXXXXXXXX. The amount of performance award payable to a participant could not be calculated and determined until after the end of the XXXXXXXXXX calendar year since awards would be based on average return on capital employed and cumulative operating income for the entire period XXXXXXXXXX and would not be vested and payable to the Eligible Executive until XXXXXXXXXX.

12. The Companies are also proposing to amend Section XXXXXXXXXX of the Performance Plan (and consequential changes to other sections of the Performance Plan), which currently contemplates payment of the performance award in cash, to provide participants in the Performance Plan who are also "Eligible Executives" as defined in the DSU Plan at the effective date of the DSU Plan with the option of receiving their performance awards under the Performance Plan in cash (as described in 11 above), in the form of DSUs or a combination of cash and DSUs. The elections were made by each such Eligible Executive on an irrevocable basis on or before XXXXXXXXXX but expressly provided that the elections would be conditional upon Subco receiving from CCRA the rulings relating to the Performance Plan Amendments set out below and a ruling that the DSU Plan is a "prescribed plan or arrangement" as described in Regulation 6801(d). If the Eligible Executive elected to participate in the DSU Plan pursuant to the Performance Plan Amendments, he/she was able to choose one of the XXXXXXXXXX following options: XXXXXXXXXX . For this purpose, DSUs already granted to the Eligible Executive pursuant to the DSU Plan and Shares owned by or for the benefit of the Executive are taken into account in determining attainment of the Share ownership requirements. If less than 100% of the Eligible Executive's potential performance award under the Performance Plan is provided in the form of DSUs pursuant to the Eligible Executive's election as described above, the remainder of his or her performance award (if any) under the Performance Plan would be paid in cash as described in 11 above. Notwithstanding the Eligible Executive's election under the Performance Plan, the Committee may in its sole discretion decline to award DSUs as described herein, in which case the Eligible Executive shall remain eligible to receive his or her performance award under the Performance Plan as if such Eligible Executive had not elected to receive DSUs pursuant to the Performance Plan.

13. Pursuant to the Performance Plan Amendments, when an Eligible Executive elects to receive his or her potential performance award wholly or partially in DSUs, such DSUs will be awarded as at XXXXXXXXXX and will be payable to the Eligible Executive pursuant to the terms of the DSU Plan described above. The number of DSUs to be awarded to an Eligible Executive under the Performance Plan Amendments would be equal to the number (if any) obtained by multiplying the value of the performance award determined in accordance with the terms of the Performance Plan (as amended pursuant to the Performance Plan Amendments described in 11 above) by the percentage of the Eligible Executive's potential performance award the Eligible Executive elected (or the percentage required by the Committee) as described in 12 above and then dividing that amount by the Fair Market Value (as defined above and in the DSU Plan) on XXXXXXXXXX.

14. The DSUs awarded to an Eligible Executive pursuant to the Performance Plan Amendments would be recorded, subsequently valued and payable in accordance with the terms of the DSU Plan described above.

PURPOSE OF THE PROPOSED TRANSACTIONS

The DSU Plan

15. The purposes of the DSU Plan are:

(a) to promote a greater alignment of interests between senior executives of Subco and the shareholders of Holdco;

(b) to provide a compensation system for senior executives that is reflective of the responsibility, commitment and risk accompanying their management role;

(c) to assist Subco to attract and retain individuals with experience and ability to act as senior management of Subco; and

(d) to allow the senior executives of Subco to participate in the long-term success of Subco.

The Performance Plan Amendments

16. The purpose of the amendments to the Performance Plan is to enable Subco to provide its senior executives with incentive compensation in a form that more closely aligns their interest with the interest of the new shareholders of Holdco XXXXXXXXXX.

OTHER INFORMATION

To the best of your knowledge and that of the Companies none of the issues in respect of which rulings are herein requested are:

(a) in an earlier return of either of the Companies or a related person of either of the Companies;

(b) being considered by a tax services office or tax centre in connection with a previously filed tax return of either of the Companies or a related person of either of the Companies;

(c) under objection by either of the Companies or a related person of either of the Companies;

(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; nor

(e) the subject of a ruling previously issued by the Canada Customs and Revenue Agency Income Tax Rulings Directorate.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and plans and amendments and purpose of the proposed transactions and plans and amendments, and provided that the terms of the DSU Plan and the Performance Plan are as described above, we rule as follows:

A. The DSU Plan will be a prescribed plan or arrangement as described in Regulation 6801(d) and will therefore be excluded from the definition of a "salary deferral arrangement", as contained in subsection 248(1) of the Act.

B. The DSU Plan will not constitute an "employee benefit plan" as defined in subsection 248(1) of the Act.

C. Provided that the DSU Plan remains unfunded, the DSU Plan will not constitute a "retirement compensation arrangement" as defined in subsection 248(1) of the Act.

D. No amount will be included in the income of any Eligible Executive as a result of awarding DSUs under the DSU Plan to an Eligible Executive under subsection 5(1), section 6 or paragraph 56(1)(a) of the Act.

E. Amounts received under the DSU Plan by or on behalf of an Eligible Executive who is resident in Canada, including any amount withheld in respect of taxes and other source deductions, will be included in the income of the Eligible Executive under section 5 of the Act in the year of receipt.

F. All amounts payable by Subco under the DSU Plan to or on behalf of the Beneficiary of an Eligible Executive, as a result of an Eligible Executive's death, shall constitute a right or thing held by the Eligible Executive at the time of death for purposes of subsections 70(2) and 70(3) of the Act.

G. Subject to paragraph 18(1)(a) and section 67 of the Act, where Subco makes a cash payment to an Eligible Executive employed by it or, if the Eligible Executive has died, to his/her Beneficiary, in satisfaction of the Eligible Executive's interest under the DSU Plan, Subco will be entitled to deduct the gross amount of that cash payment, including any amount withheld in respect of taxes and other source deductions, in calculating its income for the year in which the cash payment is made in accordance with section 9 of the Act.

H. No amount will be included in the income of any participant in the Performance Plan as a result of the amendments of the Performance Plan, in accordance with the Performance Plan Amendments in 7 through 14 above, under subsection 5(1), section 6 or paragraph 56(1)(a) of the Act.

I. The Performance Plan will not be a salary deferral arrangement for the purposes of the Act as a result of the amendments of the Performance Plan, in accordance with the Performance Plan Amendments in 7 through 14 above.

J. Where an Eligible Executive is awarded with DSUs under the Performance Plan, in accordance with the Performance Plan Amendments in 7 through 14 above, the tax treatment under the Act of the Eligible Executives, their Beneficiaries and Subco, with respect to amounts received or paid in connection with such DSUs will be as set out in rulings D. through G. above.

K. Amounts received in cash by or on behalf of a participant in the Performance Plan, in satisfaction of all or part of his or her entitlement to a performance award under the Performance Plan, including any amount withheld in respect of taxes and other source deductions, will be included in the income of the participant under section 5 of the Act in the year of receipt.

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 DSU Plan and the amendments to the Performance Plan are implemented by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate