2003 Income Tax Severed Letter 2003-0006071 - DSU PLAN AMENDMENT

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.

Position: Yes.

Reasons:

The amendments to the plan do not offend the requirements of paragraph 6801(d).

XXXXXXXXXX 							2003-000607

XXXXXXXXXX, 2003

Dear XXXXXXXXXX:

Re: Supplemental Income Tax Ruling
XXXXXXXXXX (the "Company") XXXXXXXXXX

This is in reply to your letters dated XXXXXXXXXX and is supplemental to our advance income tax ruling number 992209 (the "Ruling") dated XXXXXXXXXX, 1999.

We understand that, to the best of your knowledge and that of the above-referenced taxpayer, none of the issues involved in the ruling request is:

(i) in an earlier return of the Company 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 Company or a related person;

(iii) under objection by the Company or a related person;

(iv) before the courts; nor,

(v) the subject of a ruling previously issued by the Directorate, other than in the Ruling.

Definitions

Certain terms are defined in the Amended Plan and for the purpose of this ruling as follows:

"Board" means the board of directors of the Company.

"Common Share" means a common share without nominal or par value of the Company.

"Eligible Director" means members of the Board who are not employees of the Company, any subsidiary of the Company, XXXXXXXXXX or any subsidiary of XXXXXXXXXX.

"Participant" means an Eligible Director who has been credited Share Units under the Plan.

"Termination Date" means the date on which Termination of Board Service occurs.

All capitalized terms herein and not defined above, have the meanings given to such terms in the Ruling.

Facts

1. The board of directors of the Company approved certain amendments to the Company Share Unit Plan for Non-Employee Directors (the "Plan") on XXXXXXXXXX and that subject to obtaining confirmation of the rulings provided in the Ruling, the Amended and Restated Company Share Unit Plan for Non-Employee Directors (the "Amended Plan") will become effective as at XXXXXXXXXX.

Proposed Plan Amendments

2. It is proposed that Section XXXXXXXXXX of the Plan be amended as follows:

(b) "Annual Board Retainer Fee" means the amount, expressed in dollars, of the annual Board retainer fee payable by the Corporation to an Eligible Director for one year of service as a member of the Board.

(l) "Other Retainer Fees" means the amount, expressed in dollars, of the annual retainer fees payable to an Eligible Director for one year of service as a member or Chair of a Committee of the Board or as Chair of the Board in respect of which an Eligible Director has made an election under Section XXXXXXXXXX to be paid all or a portion of such fees in the form of Share Units.

(p) "Quarterly Board Retainer Fee" means the amount, expressed in dollars, representing twenty-five percent (25%) of the Annual Board Retainer Fee payable for a Quarter.

(q) "Quarterly Mandatory DSU Board Retainer Fee" means the amount, expressed in dollars, representing the Quarterly Board Retainer Fee payable to an Eligible Director in the form of Share Units under Section XXXXXXXXXX hereof.

(r) "Quarterly Elected DSU Board Retainer Fee" means the amount, expressed in dollars, representing the portion of the Quarterly Board Retainer Fee in respect of which the Eligible Director has made an election under Section XXXXXXXXXX to be paid all or a portion of such fee in the form of Share Units.

(s) "Quarterly Fees" means the amount, expressed in dollars, representing the Quarterly Mandatory DSU Board Retainer Fee, the Quarterly Elected DSU Board Retainer Fee, twenty five percent (25%) of the Other Retainer Fees and 100% of the Attendance Fees earned in the Quarter which would, but for the Plan, be payable in cash on the last day of each Quarter by the Corporation to an Eligible Director, or if, with respect to any Quarter, an Eligible Director has served as a member of the Board for a number of days that is less than the full Quarter, the amount, expressed in dollars, of 100% of the Attendance Fees earned up to the date the Eligible Director ceases to serve as a member of the Board plus the amount which is the product of (i) the quotient determined by dividing: (A) the number of days in the particular Quarter during which the Eligible Director served as a member of the Board, and (B) the aggregate number of days in the particular Quarter, and (ii) the amount expressed in dollars, of the Quarterly Mandatory DSU Board Retainer Fee, the Quarterly Elected DSU Board Retainer Fee and 25% of the Other Retainer Fees which would otherwise have been payable for such Quarter had the Eligible Director served as a member of the Board for the full Quarter.

(u) "Share Ownership Value" on any particular day means the greater of (1) the Market Value of the Common Shares owned by the Eligible Director and of the Common Shares represented by the Share Units credited to the Eligible Director's account and (2) the purchase price of the Common Shares owned by the Eligible Director and the historical Market Value of the Common Shares represented by the Share Units as established at the time each such Share Unit was credited to the Eligible Director's account.

3. In addition, it is proposed to amend Sections XXXXXXXXXX as follows:

Section XXXXXXXXXX : Quarterly Mandatory DSU Board Retainer Fee

Where an Eligible Director does not own an aggregate number of Common Shares and/or Share Units, the Share Ownership Value of which reaches Cdn$XXXXXXXXXX on the day prior to the Reference Date for the particular Quarter, such Eligible Director shall be paid his or her Quarterly Board Retainer Fee in the form of Share Units in lieu of being paid in cash.

Section XXXXXXXXXX : Deferral of Certain Fees

The Committee may, at its discretion, allow an Eligible Director to elect to be paid all or part of his or her fees, other than the Quarterly Mandatory DSU Board Retainer Fee, otherwise payable in cash, in the form of Share Units. In order for an Eligible Director who is resident in Canada to elect to be paid up to 100% of his or her fees, other than the Quarterly Mandatory DSU Board Retainer Fee, with respect to any particular Quarter in the form of Share Units, such Eligible Director shall, on or before the last business day of the particular Quarter to which the fees relate, complete and deliver to the Company a written election specifying, in percentage terms, the extent to which such Eligible Director elects to be paid his or her fees in the form of Share Units for the particular Quarter.

Except as otherwise provided herein, in order for an Eligible Director who is resident in the United States to elect to be paid up to 100% of his or her fees, other than the Quarterly Mandatory DSU Board Retainer Fee, with respect to any particular Quarter in the form of Share Units, such Eligible Director shall, on or before the date that is the last business day of the calendar year ending immediately before the particular calendar year to which the fees relate, complete and deliver to the Company a written election specifying, in percentage terms, the extent to which such Eligible Director elects (1) to be paid his or her fees, other than the Quarterly Board Retainer Fee, in the form of Share Units for any particular Quarter, and (2) to be paid his or her Quarterly Board Retainer fee in the form of Share Units for any particular Quarter commencing with the Quarter in which the Eligible Director owns an aggregate number of Common Shares and/or Share Units, the Share Ownership Value of which reaches $XXXXXXXXXX on the day prior to the Reference Date for that Quarter. In order for an Eligible Director who is a resident of the U.S. to make an election in the calendar year in which such Eligible Director is first elected or appointed to the Board or has become an Eligible Director, such Eligible Director shall complete and deliver to the Company his or her written election on or before the earlier of:

i) the date that is thirty days after the Eligible Director is first elected or appointed to the Board or has become an Eligible Director; and

ii) the last business day of the particular Quarter in which the Eligible Director is first elected or appointed to the Board or has become an Eligible Director.

However, to the extent an election has been made, such election shall remain in force until the Termination Date unless revoked by the Eligible Director or the Committee. Any Share Units so credited to the Participant's account will be governed by the Plan.

Purpose of the Proposed Amendments

4. Under the terms of the DSU Plan in respect of which the Ruling was issued, an Eligible Director of the Company was obliged to receive one hundred percent (100%) of his or her annual retainer fee for services rendered as a member of the Board, as a member and chair of a Committee of the Board or chair of the Board, in the form of Share Units. Such Eligible Director of the Company was, however, entitled to elect to be paid up to one hundred percent (100%) of fees other than his or her annual retainer fee in the form of Share Units in lieu of being paid in cash. The remainder (if any) of the Eligible Director's compensation would be paid in cash (net of applicable withholdings).

In order to enhance the Company's ability to attract and retain high quality individuals to serve as members of the Board of the Company, the Human Resources and Corporate Governance Committee and the Board of the Company have determined that it is appropriate:

i) to adjust the compensation levels of its non-employee directors,

ii) to limit the obligation to receive Share Units to the Quarterly Board Retainers Fee only where the Eligible Directors' Share Ownership Value is below $XXXXXXXXXX, and

iii) to allow Eligible Directors whose Share Ownership Value reaches $XXXXXXXXXX to elect to receive all or a portion of their adjusted compensation in the form of Share Units.

Rulings 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 70-6R5, dated May 17, 2002.

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 70-6R5 dated May 17, 2002, 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