2003 Ruling 2003-0027513 - AMENDED DSU PLAN

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 the proposed amendments to an existing DSU plan result in the plan ceasing to qualify under paragraph 6801(d) of the Regulations?

Position: No

Reasons: The requirements of paragraph 6801(d) are still met.

XXXXXXXXXX 2003-002751

XXXXXXXXXX, 2003

Dear XXXXXXXXXX:

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

This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling on behalf of the above-named taxpayer.

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

(i) in an earlier return of the taxpayer or a related person,

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person,

(iii) under objection by the taxpayer or a related person,

(iv) before the courts or,

(v) the subject of a ruling previously issued by the Directorate to the taxpayer or a related person other than as noted in 4, below;

Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter, (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.

Facts

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

1. The Corporation is a resident of Canada and has a XXXXXXXXXX year-end. It is a "public corporation" and a "taxable Canadian corporation" as those terms are defined in subsection 89(1) of the Act.

2. The Corporation files its tax returns with the XXXXXXXXXX Tax Centre and is located within the area served by the XXXXXXXXXX Tax Services Office. The Corporation's mailing address is:

XXXXXXXXXX.

3. XXXXXXXXXX.

4. The Corporation established "XXXXXXXXXX" (the "Plan") for the benefit of Canadian and non-resident directors of the Corporation. The Plan is the subject of advance income tax ruling #972568 dated XXXXXXXXXX, 1997 (the "1997 Ruling") and is a prescribed plan under paragraph 6801(d) of the Income Tax Regulations (the "Regulations"). Only non-employee members of the Board of Directors of the Corporation are eligible to participate in the Plan (the "Participants").

5. The Corporation pays its non-employee directors an annual retainer fee. XXXXXXXXXX percent of the annual retainer fee (the "Quarterly Retainer Fee") is payable on the last day of each quarter of the financial year of the Corporation. Under the terms of the Plan, each Participant is allocated XXXXXXXXXX% of his or her Quarterly Retainer Fee in the form of a number of common shares of the Corporation credited to a notional account maintained for each Participant on a deferred basis ("DSUs") where each DSU would be the equivalent of a common share of the Corporation. The Participant receives the remainder of his or her Quarterly Retainer Fee in cash net of applicable withholdings.

6. A Participant becomes entitled to satisfaction of the DSUs in his or her account on the earliest date that both of the following conditions are met ("Entitlement Date"): (i) the Participant has ceased to be employed by the Corporation or any related company for any reason whatsoever; and (ii) the Participant is neither a member of the Board nor a Director of any related company (collectively referred to as "Termination of Board Service").

The Plan currently provides that the Entitlement Date of a Participant with respect to whom a Termination of Board Service has occurred is automatically the XXXXXXXXXX trading day following the release of the Corporation's quarterly or annual results immediately following the Participant's Termination of Board Service ("Default Entitlement Date"). In no event can the Entitlement Date be later than the last day of the first calendar year commencing after the Participant's Termination of Board Service.

7. A Participant is entitled to receive, at the sole discretion of the Corporation, in satisfaction of the DSUs recorded in the Participant's account on the Default Entitlement Date, one of the following:

(i) an amount of cash equal to the number of DSUs multiplied by the Market Value (as defined in the Plan) of a common share of the Corporation on the Entitlement Date;

(ii) the equivalent number of common shares of the Corporation issued from Treasury; or

(iii) the equivalent number of common shares of the Corporation purchased on the open market by a designated broker.

8. The Corporation is in the process of winding up its businesses. It is anticipated that the Corporation may be wound-up within the next XXXXXXXXXX months.

Proposed Transactions

9. The Board approved certain amendments to the Plan at its XXXXXXXXXX meeting. Subject to receipt of an advance income tax ruling, the Corporation will amend the terms of the Plan with effect from XXXXXXXXXX. By virtue of the amendment, a Participant will be entitled to select, in his or her sole discretion, an Entitlement Date other than the Default Entitlement Date (the "Elected Entitlement Date") provided that in no event may the Elected Entitlement Date be earlier than the Default Entitlement Date or later than the last day of the first calendar year commencing after the Participant's Termination of Board Service. The selection of an Elected Entitlement Date must be by written election filed with the Corporation's committee of directors responsible for compensation related matters no later than five business days prior to the Default Entitlement Date.

10. The Plan is administered such that a Participant does not become entitled to redemption of DSUs as described in 6 and 7 unless he or she is neither an employee nor a Director of the Corporation or a related company.

11. In connection with the wind-up of the Corporation's affairs, the Board of Directors will pass a resolution to terminate the Plan. In consideration of the Plan's termination each Participant will be entitled to receive the cash value of the DSUs recorded in his or her account. This payment may be made by the Corporation on any business day between the date the Board passes the resolution to wind-up the Plan and XXXXXXXXXX of that same year ("Wind-up Entitlement Date"). The Participant may file a written election with the Corporation's committee of directors responsible for compensation related matters respecting his or her Wind-up Entitlement Date. In the absence of any such written election, the Wind-up Entitlement Date will be the last business day of the calendar year in which the resolution to terminate the Plan is passed.

Purpose of the Proposed Transactions

12. The purpose of the amendments to the Plan is to provide greater flexibility to the Participants in the determination of an Entitlement Date while continuing to provide non-employee Directors of the Corporation with a long-term stock based compensation program and to ensure that the written text of the Plan clearly complies with paragraph 6801(d) of the Regulations and reflects how the Plan is being administered.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed plan and purpose of the proposed plan, and provided that the terms of the Plan are as described above, we rule as follows:

A. Provided the Plan was implemented prior to the deadline in the 1997 Ruling, the rulings set out therein will continue to be binding on the Canada Customs and Revenue Agency (the "CCRA") in accordance with the practice outlined in Information Circular 70-6R5 dated May 17, 2002. The rulings in the 1997 Ruling will be binding only until the date that the Board of Directors passes the resolution to terminate the Plan.

B. When cash is paid to a Participant on a Wind-up Entitlement Date in accordance with 11, above, the amount paid, before any withholding taxes, will be included in the Participant's income under subsection 5(1) of the Act.

The above advance income tax rulings, which are based on the Act and Regulations in their 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 70-6R5 Advance Income Tax Rulings, dated May 17, 2002, and are binding on the CCRA provided that the proposed amendment to the Plan is implemented by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate