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: Will a 6801(d) plan continue to qualify as a prescribed plan under Regulation 6801(d), where certain amendments are made to the plan, e.g. an alternative method of calculating the fair market value of shares where the shares are no longer publicly traded?
Position: Yes
Reasons: The amendments to the plan do not offend the requirements of paragraph 6801(d).
XXXXXXXXXX 2001-010163
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: Supplemental Income Tax Ruling
XXXXXXXXXX (the "Corporation") - (XXXXXXXXXX)
This letter is in reply to your letter dated XXXXXXXXXX, wherein you requested, on behalf of the above-referenced taxpayer, an advance income tax ruling. 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.
References to the "Ruling" herein are to the ruling dated XXXXXXXXXX, 2001 (2001-008218), issued by the Canada Customs and Revenue Agency. Unless stated otherwise, defined terms in this letter are as defined in the Ruling.
We understand that, to the best of your knowledge and that of the Corporation, none of the issues involved in the ruling request is:
(i) in an earlier return of the Corporation or a related person,
(ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation or a related person,
(iii) under objection by the Corporation or a related person,
(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; nor
(v) the subject of a ruling previously issued by the Directorate.
Our understanding of the facts, proposed amendments to the plan and purpose of the proposed amendments to the plan is as follows:
Facts
1. The Corporation established the Plan effective XXXXXXXXXX (i.e., the date of the Ruling) in accordance with the Ruling. Pursuant to 2b of the Ruling, Directors received a grant of XXXXXXXXXX DSUs as of XXXXXXXXXX.
2. As of the date of this ruling, the Shares are principally traded on XXXXXXXXXX.
3. As of the date of this ruling, no Director has experienced a Termination Date, thus no amount has been paid or is currently payable in respect of DSUs granted under the Plan.
Proposed Amendments to the Plan
4. Pursuant to its amending power under Section XXXXXXXXXX of the Plan, the Corporation proposes to amend the Plan, with effect from the date of this ruling, such that the Plan as amended will continue to satisfy the requirements of a "prescribed plan or arrangement" as described in paragraph 6801(d) of the Income Tax Regulations ("Regulation 6801(d)"), in order to:
(i) provide that, for purposes of valuing DSUs that are redeemed by or on behalf of a Director after the date on which the Shares cease to trade on a Stock Exchange (the "Cease Trade Date"), if the Director's Termination Date is less than 365 days after the fifth Trading Day before the Cease Trade Date, the value of such DSUs on the Director's Redemption Date will be based on the average closing price of a Share on the Stock Exchange on the five Trading Days before the Cease Trade Date and, if the Director's Termination Date is more than 365 days after the Cease Trade Date, the value of such DSUs on the Director's Redemption Date will be based on the value of a share of the Corporation (or of a share of a company related to the Corporation for purposes of the Act) as determined on a reasonable and equitable basis by the Board after obtaining the advice of one or more reputable, independent investment banks;
(ii) provide for Shares to be valued on such reasonable and equitable basis as the Board may determine for purposes of determining the number of DSUs to be granted as dividend equivalents under Section XXXXXXXXXX of the Plan after a Cease Trade Date; and
(iii) amend the definitions of: "Stock Exchange" in Section XXXXXXXXXX to reflect the fact that the Corporation's Shares could become listed solely on one or more stock exchanges outside Canada; "Deferred Share Unit" in Sections XXXXXXXXXX of the Plan by deleting the phrase "on which at least one board lot of Shares was traded" to more accurately reflect the way in which Shares currently trade publicly and may trade publicly in the future; and, to add the definition "Cease Trade Date" in Sections XXXXXXXXXX of the Plan.
Purpose of the Proposed Amendments to the Plan
Valuation of Shares after a Cease Trade Date
5. The purpose of the amendments relating to the valuation of shares of the Corporation or of a company related thereto after a Cease Trade Date is to include a mechanism in the Plan that would permit such shares (and thus the DSUs granted under the Plan) to be valued for the purposes of redeeming DSUs and granting additional "dividend equivalent" DSUs where there is no longer a public market for the Shares at the relevant redemption or grant date.
Other Changes in "Administrative" Amendments
6. The amendment to the definition of "Stock Exchange" is intended to reflect the global nature of the Corporation's business and the fact that it is possible the Shares could become listed solely on one or more stock exchanges outside Canada.
7. The deletion of the phrase "on which at least one board lot of Shares was traded" in the definition of "Deferred Share Unit" in Sections XXXXXXXXXX of the Plan is intended to reflect the fact that the Shares are not required to trade in "board lots" XXXXXXXXXX.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed amendments to the Plan and purpose of the proposed amendments to the Plan and provided the proposed amendments to the Plan are completed as described above, we rule as follows:
A. Provided the Plan was implemented prior to the deadline set out in the Ruling, the rulings issued in the Ruling will continue to be binding on the Agency in accordance with the practice outlined in Information Circular 70-6R4, dated January 29, 2001.
The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information circular 70-6R4 dated January 29, 2001, and is binding on the Canada Customs and Revenue Agency provided that the proposed amendments to the Plan are implemented by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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