2001 Ruling 2001-0103713 - PHANTOM STOCK PLAN, EXECUTIVE

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 proposed amendments to an arrangement adversely affect rulings that were previously obtained with respect to the 6801(d) plan?

Position:

No.

Reasons:

The proposed amendments do not have any effect on the rulings previously issued because the provisions of 6801(d) remain satisfied.

XXXXXXXXXX 						2001-010371

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Corporation") (XXXXXXXXXX)

This is in reply to your letter of XXXXXXXXXX , regarding the rulings provided in our letters of XXXXXXXXXX, 2000 and XXXXXXXXXX, 1998 (our files 2000-002572 and 982889) (the "First Supplemental Ruling" and the "Original Ruling", respectively) and an amendment you wish to make to your deferred share unit plan.

In this letter, the following terms have the meanings specified and are the same as previously specified in our letters of XXXXXXXXXX, 2000 and XXXXXXXXXX, 1998:

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

(b) "Board" means the board of directors of the Corporation;

(c) "Deferred Stock Units" means a notional number of Shares maintained in a notional account on behalf of an Employee who participates in the Plan;

(d) "Employee" means an individual who is a senior management officer of the Corporation;

(e) "Fiscal Year" means the Corporation's "fiscal period" as defined under section 249.1 of the Act;

(f) "Incentives" means the annual performance incentive compensation to which members may become entitled in respect of a Fiscal Year;

(g) "Plan" means XXXXXXXXXX Deferred Stock Unit Plan as described in the Original Ruling and the First Supplemental Ruling;

(h) "Regulations" means the Income Tax Regulations; and

(i) "Share" means a common share of the Corporation and such other share substituted therefore as a result of amendments to the articles of the Corporation, reorganization or otherwise.

Facts

1. The Corporation is a public corporation and a taxable Canadian corporation for purposes of the Act and its shares are listed for trading on a public stock exchange. The Corporation deals with the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre. Its Business Number is XXXXXXXXXX and its mailing address is XXXXXXXXXX.

2. The Corporation established the Plan as an additional performance incentive for its Employees, under which all or part of the Employee's Incentives may, at the Employee's election, be deferred and allocated as Deferred Stock Units under the Plan rather than taken as a cash payment.

3. In the Original Ruling and the First Supplemental Ruling, Employee was defined to mean a senior management officer of the Corporation. Senior Officer was subsequently defined in the Plan to mean those senior management officers of the Corporation at the Senior Vice-President level or above.

4. The Plan was implemented subsequent to the receipt of the Original Ruling which confirmed that the Plan met the requirements of 6801(d) of the Regulations and was excluded from being considered a "salary deferral arrangement" by virtue of paragraph (l) of the definition of "salary deferral arrangement" in subsection 248(1) of the Act. In the Original Ruling, four rulings were issued regarding the status of the Plan and the tax treatment of the participants under the Plan, subject to the proviso that the Plan is not amended.

5. In XXXXXXXXXX, the Corporation implemented Stock Ownership Guidelines (the "Guidelines") whereby certain senior officers of the Corporation were required by a specified date to hold a prescribed minimum number of shares of the Corporation and/or Units under the Plan. In connection with the implementation of the Guidelines, the Corporation sought to allow Employees who are subject to the Guidelines to be able to make further elections with respect to the XXXXXXXXXX Fiscal Year in order to help the Employees meet the requirements under the Guidelines, through increased ownership of Deferred Stock Units. The Corporation sought confirmation from the Canada Customs and Revenue Agency ("CCRA") that such amendment to the Plan would not adversely affect the operation of the Plan within the requirements of paragraph 6801(d) of the Regulations.

6. The proposed amendments to the Plan at that time were intended to permit elections or supplemental elections by those Senior Officers who were subject to the Guidelines to be made during such additional period as approved by the Human Resources Committee of the Board. Such revised election was subject to the stipulation that in all events, all elections respecting any Incentive for a Fiscal Year would be made prior to the date of entitlement (the "Entitlement Date") to receive payment of such Incentive. CCRA issued the First Supplemental Ruling confirming that such changes to the Plan would not affect the continuing validity of the Original Ruling.

7. The Entitlement Date for any Fiscal Year with respect to Incentives which relate to that year and to which the Employee may become entitled, will always be a date which occurs after the end of the Fiscal Year in respect of which such entitlement arises. Typically, Incentives are established by the Board early in XXXXXXXXXX of any year, usually XXXXXXXXXX weeks after the end of the Fiscal Year of the Corporation in respect of which such Incentives are to be paid. In no event will the Entitlement Date in respect of Incentives to which an Employee may become entitled under the Plan be a date which precedes, or occurs at any time during the Fiscal Year of the Corporation in respect of which such Incentives will become payable. The Entitlement Date will always follow the relevant Fiscal Year.

Proposed Amendments to the Plan

8. XXXXXXXXXX is proposing to alter the composition of the remuneration package to which Employee's may become entitled in respect of this and future Fiscal Years of the Corporation. The proportion of their remuneration derived from Incentives may be increased significantly. In light of this change to the composition of the remuneration package payable to Employees of the Corporation, the Corporation wishes to now offer Employees the opportunity to prepare a new election with respect to Fiscal Year XXXXXXXXXX to permit such Employees to reconsider and increase or decrease the proportion of their Incentives which they elect to receive in Deferred Stock Units.

9. In addition to the change to the Plan described in the preceding paragraph, the Corporation now wishes to extend participation in the Plan below the Senior Vice President level to include employees who are Vice-Presidents of the Corporation. This amendment to the Plan would be accomplished by amending the Plan definition of Senior Officer to include those senior management officers of the Corporation at the Vice-President level or above. The Corporation wishes to extend the opportunity to participate in the Plan to such employees in respect of the Fiscal Year XXXXXXXXXX, in addition to subsequent years. As such, the Corporation wishes to now allow the proposed expanded class of Employees the opportunity to elect at this time, or at any time prior to the end of the Fiscal Year of the Corporation, to receive Incentives to which they may become entitled by way of Deferred Stock Units.

10. Revised elections which may be made by Employees who are current Plan participants, and first time elections by Vice-President level Employees who will become Plan participants by reason of the proposed changed definition for Senior Officer, will be required to be made on or before XXXXXXXXXX, or in any event on a date that precedes the Entitlement Date in respect of the XXXXXXXXXX Fiscal Year of the Corporation.

Purpose of the Proposed Amendments to the Plan

11. The proposed amendments to the Plan will be made to permit existing Employees to adjust their elections in respect of the Corporation's proposed revised Employee compensation package, and permit later elections to be made than was originally contemplated under the Plan. In no event, however, will any elections be made on or after the Entitlement Date, and in all probability such elections will always be made prior to the end of the Fiscal Year of the Corporation in respect of which Incentives may be payable to Employees. The second purpose of the proposed amendment is to extend the right to participate in the Plan to senior management officers of XXXXXXXXXX who are at the Vice President level, thereby expanding participation in the Plan.

Additional Information

12. To the best of your knowledge and that of the Corporation, none of the issues related to this request:

(a) have previously been reported in the Corporation's or any related party's prior income tax returns;

(b) are being considered by a tax services office or tax centre in connection with the Corporation's or a related party's prior income tax return;

(c) are under objection by the Corporation or a related person;

(d) are before the courts; nor

(e) are, except to the extent noted above, the subject of a ruling previously issued by this directorate to the Corporation.

Ruling

Provided the above statement of facts and the proposed amendment to the Plan are accurate and constitute a complete disclosure of all relevant facts and provided the amendments are completed as proposed, we rule that the rulings provided in the Original Ruling as amended by the First Supplemental Ruling will continue to be valid and binding upon the Canada Customs and Revenue Agency.

This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R4 dated January 29, 2001 issued by the Canada Customs and Revenue Agency and are binding provided the proposed amendment is implemented on or before XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate