25 April 2003 External T.I. 2003-0013485 - RESTRICTED SHARE UNITS SDA RULES

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 we consider a specific restricted share unit (RSU) plan to be a salary deferral arrangement (SDA)?

Position:

Probably an SDA but it is a question of fact that should be the subject of an advance income tax ruling.

Reasons: RSUs have inherent value at the time of the grant .

XXXXXXXXXX
2003-001348
Renée Shields
(613) 948-5273
April 25, 2003

Dear XXXXXXXXXX:

Re: Employee incentive plan and the salary deferral arrangement (SDA) rules

This is in response to your letter of April 14, 2003 inquiring whether an SDA would be created by the terms of the specific employee incentive plan described in your correspondence.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.

In general terms, the employee incentive plan you describe involves awarding restricted share units (RSUs) to employees, which RSUs will vest at a later date.

Arrangements that would otherwise be SDAs may be excluded from the SDA definition if they fit within one of several exempting provisions. Paragraph (k) of the SDA definition in subsection 248(1) of the Income Tax Act provides that an arrangement to pay a deferred bonus will be excluded if the bonus is paid within a three-year period following the year it is earned. Specifically, the exclusion provides:

a plan or arrangement under which a taxpayer has a right to receive a bonus or similar payment in respect of services rendered by the taxpayer in a taxation year to be paid within 3 years following the end of the year.

In your letter you acknowledge that the exemption under paragraph (k) would not apply to the plan design in question and ask whether the plan would be exempted from the SDA rules based on arguments turning on the main purpose test contained in the SDA definition. The determination of whether a specific plan would constitute an SDA is a question of fact. If you wish to verify whether a specific proposed employee incentive plan will be considered an SDA, we recommend that you submit a request for an advance income tax ruling.

We trust that these comments will be of assistance.

Yours truly,

Mickey Sarazin, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch