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:
Where two trusts and a corporation are the limited partners and a 2nd corporation is the general partner in a partnership, can a stock option plan be set up in respect of the partnership?
Position: Yes.
Reasons:
There are no agreements in place which limit the employment relationship of any of the employees of the partnership to any of the corporate or trust partners. Consequently, each of the employees of the partnership are considered to be employees of each of the partners of the partnership for the purposes of section 7.
XXXXXXXXXX 2001-011593
XXXXXXXXXX, 2002
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX (the "Partnership"), XXXXXXXXXX
XXXXXXXXXX ("CorpII"), XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the parties to the ruling as set out above (the "Parties").
Unless otherwise noted, all statutory references herein are to the Income Tax Act, R.S.C. 1985, c. 1 (5th Sup.), as amended (hereinafter referred to as the "Act"), or to the Income Tax Regulations ("Regulations").
The relevant facts, proposed transactions and purpose of the proposed transactions, as we understand them, is as follows:
Relevant Facts
1) The Parties to this ruling request are:
a) The Partnership, XXXXXXXXXX, a limited partnership created under the Laws of XXXXXXXXXX. The Partnership has a taxation year ending on XXXXXXXXXX. The Partnership maintains its offices in XXXXXXXXXX .
b) XXXXXXXXXX ("CorpII"), XXXXXXXXXX, a company incorporated under the laws of XXXXXXXXXX. CorpII has a taxation year ending on XXXXXXXXXX. CorpII maintains its registered offices in XXXXXXXXXX.
c) XXXXXXXXXX ("CorpI"), XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX. CorpI has a taxation year ending on XXXXXXXXXX . CorpI maintains its registered offices in XXXXXXXXXX .
2) The partners in the Partnership (the "Partners"), with their respective interests, are currently as follows:
a) CorpII XXXXXXXXXX%
b) CorpI XXXXXXXXXX
c) XXXXXXXXXX ("Holdings") XXXXXXXXXX%
d) a trust beneficially held by the XXXXXXXXX ("TrustA") XXXXXXXXX%
e) a trust beneficially held by XXXXXXXXXX ("TrustB") XXXXXXXXX%
3) CorpI is the general partner in the Partnership. CorpII, Holdings, TrustA and TrustB are the limited partners in the Partnership.
4) CorpI is XXXXXXXXXX% indirectly owned by XXXXXXXXXX ("Parentco"), its ultimate parent company. Holdings owns the remaining XXXXXXXXXX% of CorpI. Holdings is not related to Parentco.
5) CorpII is indirectly owned by Parentco, its ultimate parent company.
6) Parentco is a corporation incorporated under the laws of XXXXXXXXXX which maintains its head office in XXXXXXXXXX. Its ordinary common shares are listed on the XXXXXXXXXX Stock Exchange.
7) The Partnership currently employs about XXXXXXXXXX people at XXXXXXXXXX Most of these employees are members of either the TrustA or the TrustB.
8) There are no agreements in place which provide for an employee of the Partnership to be employed only by a particular partner of the Partnership.
Proposed Transactions
9) Parentco intends to grant stock options in Parentco under a stock option plan (the "Plan") to all employees who have been employed by the Partnership for more than XXXXXXXXXX months.
10) The Plan will entitle the eligible employees to purchase ordinary common shares of Parentco, and require Parentco to sell or issue shares of Parentco, at a price that is at least equal to the fair market value of the Parentco shares at the date of grant.
11) No employee of the Partnership will be a Specified Shareholder (as the term is defined under subsection 248(1) of the Act) of Parentco, XXXXXXXXXX or CorpII. No employee will deal at non-arm's length with either Parentco, CorpI or CorpII immediately after the stock options are granted.
12) The ordinary common shares of Parentco satisfy the requirements for a prescribed share as defined under Regulation 6204 of the Act.
13) The stock options will generally vest either within XXXXXXXXXX years or XXXXXXXXXX years from the date of grant of the stock options. An early vesting of the stock options will occur if the employee becomes disabled, is laid-off, or retires before the time of the regular vesting date.
14) Each employee will designate a certain number of shares up to the maximum number of shares that they are granted under the Plan. Each employee would then fund the purchase of the designated shares by having a portion of his or her employment income withheld at source from each pay period and deposited into an account established for that employee.
15) A Canadian financial institution will administer the funds held on behalf of each employee and will issue T5 information slips at the end of year to record the interest accruing on each account.
16) At the vesting date, the employee may then:
a) decline to acquire any shares under the Plan, and request a refund of all funds he or she had set aside with the Canadian financial institution;
b) purchase the option shares at the grant price; or
c) some combination of the two.
17) The shares granted to the employees under the Plan will not be "exchanged options" as referred to in subsection 7(1.4) of the Act.
18) The receipt of an advance income tax ruling is one of the conditions precedent to the establishment of the Plan.
Purpose of Proposed Transactions
19) The purpose of the proposed transaction is to allow the employees of the Partnership:
a) to participate in the ownership of Parentco. The Partnership is a significant component of the businesses operations of Parentco;
b) to participate in the transition of their workplace from a XXXXXXXXXX; and
c) to offer the employees of the Partnership an improved compensation package.
To the best of your knowledge and the knowledge of the taxpayers involved, none of the issues in this request for an advance income tax ruling is:
1. in an earlier return of any of the taxpayers or of a person related to any of the taxpayers;
2. being considered by a tax services office or tax centre in connection with a previously-filed return of any of the taxpayers or of a person related to any of the taxpayers;
3. under objection by any of the taxpayers or by a person related to any of the taxpayers;
4. before the courts; or
5. the subject of a ruling previously issued by the Income Tax Rulings Directorate to any of the taxpayers.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transaction and purpose of the proposed transaction, we rule as follows:
A. Subject to subsection 7(8) of the Act, in the taxation year that an employee of the Partnership exercises a stock option granted under the Plan and acquires shares of Parentco, as described in 16, paragraph 7(1)(a) of the Act will apply to deem the employee to have received a benefit calculated in accordance with the provisions therein.
B. Provided that the provisions of subparagraph 110(1)(d) of the Act are otherwise satisfied, an employee of the Partnership is entitled, under paragraph 110(1)(d) of the Act, to a deduction for a taxation year equal to one-half of the benefit included in the employee's income in the taxation year under Ruling A.
The above rulings, which are based on the Act in its 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 dated January 29, 2001, and are binding on the Canada Customs and Revenue Agency provided that the stock options are granted prior to XXXXXXXXXX.
Nothing in this letter should be construed as confirmation, express or implied, of the fair market value of the Parentco shares.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
??
??
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2002
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2002
Email this Content