2004 Ruling 2004-0056921R3 - stock options; conversion of plans

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.

Principal Issues:

1. Will the replacement of a SAR plan with an agreement that is subject to section 7, result in an immediate taxable event?

2. How will the exchange effect the calculation of the PUC of the shares that are issued under the agreement?

3. Will the inclusion of tax motivated provisions in the agreement be a concern?

4. What will the consequences be when the shares are reacquired by the corporation or a nominee?

Position:

1. A taxable event will not occur.

2. The PUC may reflect the liabilities set up on the books of the company to the extent the liability represents the fair market value of the services performed by the employees who are receiving the shares. We are of the view that the term "fair value" as used in the XXXXXXXXXX is equivalent to the fair market value".

3. No.

4. Sections 84 and 84.1 may apply but this is a question of fact.

Reasons:

1. We have previously indicated that paragraph 7(3)(a) of the Act will apply on the issue of the agreement to limit the taxation of any benefits that might arise as a result of this kind of conversion. The employees do not receive any amount as a result of the agreement to waive any rights under the SAR.

2. Applicable corporations Act.

3. It is common for section 7 agreements to provide terms to ensure the holding periods and prescribed share rules may be satisfied and the Act is written to accommodate these features.

4. It is a question of fact whether a nominee corporation will be an agent of the corporation.

XXXXXXXXXX 						2004-005692

XXXXXXXXXX, 2004

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, and our electronic correspondence of XXXXXXXXXX in respect of your request for an advance income tax ruling on behalf of the above-noted corporation and the Participants (as defined below).

This letter is based solely on the facts and proposed transactions described below. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

Definitions and Abbreviations

In this letter, the following terms have the meanings specified:

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

(b) "Change of Control" means: a change of control as defined in 10 below;

(c) "CRA" means: the Canada Revenue Agency;

(d) "Common Share" means: a fully participating, voting, common share in the capital stock of the Corporation;

(e) "Corporation" means: XXXXXXXXXX

Account #XXXXXXXXXX ,
XXXXXXXXXX Tax Services Office,
XXXXXXXXXX Tax Centre;

(f) "Deferred Closing Date" means: the deferred closing date as defined in 11(j) below;

(g) "XXXXXXXXXX" means: the XXXXXXXXXX as described in 10 and 11 below;

(h) "Executive" means: an executive of the Corporation who has been selected to be a Participant under the XXXXXXXXXX Plans;

(i) "Fair Market Value per Share" means: for the purposes of the XXXXXXXXXX,

(i) in the case of a Preference Share, the aggregate redemption amount for such share as provided for in the share conditions attaching to a Preference Share in the articles of the Corporation; and

(ii) in the case of a Common Share, the greater of:

(A) the value per Common Share determined by averaging certain independent third party valuations obtained by the Corporation from time to time taking into consideration various criteria as set forth in the XXXXXXXXXX; and

(B) the price paid by an arm's length purchaser (if any) of Common Shares within the period of XXXXXXXXXX days immediately preceding the date for which it is necessary to determine the Fair Market Value per Share;

(j) "Incentive Compensation" means: collectively, a Participant's entitlement to a payment under the XXXXXXXXXX Plan or the XXXXXXXXXX Plan;

(k) "XXXXXXXXXX Group" means:the XXXXXXXXXX Group that is composed of XXXXXXXXXX;

(l) "Monetization Date" means: the date that is the earliest of:

(i) XXXXXXXXXX;

(ii) the date upon which the Executive has completed XXXXXXXXXX years of employment with the Corporation and/or an affiliate of the Corporation; and

(iii) the date upon which there is a Change of Control.

(m) "Participant" means: an Executive or director of the Corporation, or any other employee of the Corporation, who has been selected from time to time by the president of the Corporation to be a participant under the XXXXXXXXXX Plans;

(n) "XXXXXXXXXX Plans" means: collectively, the XXXXXXXXXX Plan and the XXXXXXXXXX Plan;

(o) "Preference Share" means: a non-voting, non-participating, redeemable and retractable preference share in the capital stock of the Corporation;

(p) "XXXXXXXXXX Plan" means: the XXXXXXXXXX Plan as described in 5 through 9 below;

(q) "Regulations" means: The Income Tax Regulations;

(r) "Share" means: a Common Share or a Preference Share, as the case may be;

(s) "XXXXXXXXXX Plan" means:the XXXXXXXXXX Plan as described in 5 through 9 below;

(t) "XXXXXXXXXX co" means:XXXXXXXXXX;

(u) "Termination" means: the termination of an Executive's employment with the Corporation or an affiliate of the Corporation for any reason whatsoever, other than as a result of the death of the Executive; and

(v) "Termination Date" means: the date on which there is a Termination of a particular Executive's employment.

In addition, in this letter:

(w) the terms "qualifying person" and "security" have the meanings assigned by subsection 7(7) of the Act;

(x) the terms "Canadian-controlled private corporation", "employee", "officer" and "taxable Canadian corporation" have the meanings assigned to them by subsection 248(1) of the Act; and

(y) the term "arm's length" has the meaning assigned by subsection 251(1) of the Act.

Facts

1. The Corporation is a taxable Canadian corporation and a Canadian-controlled private corporation that is governed by the Business Corporations Act (XXXXXXXXXX).

2. XXXXXXXXXX co owns all of the issued and outstanding Shares.

3. The Executives are employees of the Corporation and each deals at arm's length with the Corporation and with XXXXXXXXXX co.

4. The Corporation and XXXXXXXXXX co are qualifying persons.

XXXXXXXXXX Plans

5. The Corporation established the XXXXXXXXXX Plans in order to attract and retain highly qualified employees. The XXXXXXXXXX Plan was established in XXXXXXXXXX and the XXXXXXXXXX Plan was established in XXXXXXXXXX. The XXXXXXXXXX Plans are substantially the same in nature and Participants participate in both Plans.

6. In basic terms, under the terms of the XXXXXXXXXX Plans, the Corporation has agreed to pay a benefit, referred to as the Participant's Incentive Compensation, to each Participant. The Participant's Incentive Compensation is to be paid after the right to receive the benefit vests, and when the Participant terminates employment with the Corporation or at such earlier time as may be provided in the XXXXXXXXXX Plans.

7. The amount of a particular Participant's Incentive Compensation is based on the increase in the fair market value of the shares of the Corporation over the period that the particular Participant participates in the XXXXXXXXXX Plans, where the fair market value of a share for this purpose, is determined in accordance with the XXXXXXXXXX Plans. In general terms, in order to determine the Incentive Compensation, a "notional percentage" is determined based on the Participant's base salary multiplied by a fixed multiplier as set out in the XXXXXXXXXX Plans. The Participant is then awarded this notional percentage of the Corporation's shares. The Incentive Compensation is then determined as the amount that is equal to the increase in the fair market value of the issued and outstanding shares of the Corporation from the date that the Participant joined the XXXXXXXXXX Plans until the Redemption Date (as defined in the XXXXXXXXXX Plans) multiplied by the notional percentage.

8. The XXXXXXXXXX Plans provide that in the event of an initial public offering of stock by the Corporation, the Corporation will be required to issue shares to each Participant with a total value equal to such Participant's entitlement to Incentive Compensation.

9. For greater certainty, no Executive to whom this advance income tax ruling applies will, at the time the proposed transactions are undertaken, have any entitlement to any Incentive Compensation as a result of any redemption made in accordance with the terms of either of the XXXXXXXXXX Plans or otherwise have any right to receive any amount in accordance with the terms of either XXXXXXXXXX Plan.

Proposed XXXXXXXXXX

10. For the purposes of an XXXXXXXXXX, a Change of Control of the Corporation or of XXXXXXXXXX co, as the case may be, means the occurrence of any one or more of the following events:

(a) the acquisition by a person or group of persons not dealing at arm's length with each other, of such number of Shares or shares of XXXXXXXXXX co, as the case may be, as would entitle such person or such group of persons, to exercise more than 50% of all of the votes which could be cast at a meeting of the shareholders of the Corporation or XXXXXXXXXX co, as the case may be (other than a meeting of a particular class or series of Shares or shares of XXXXXXXXXX co, as the case may be, voting separately as a class or series), or the acquisition of particular Shares or shares of XXXXXXXXXX co, as the case may be, as would permit the holder or holders to elect a majority of the board of directors of the Corporation or XXXXXXXXXX co, as the case may be, (any such Shares or shares being referred to in this definition as "Voting Shares");

(b) a consolidation, merger, amalgamation, arrangement or other reorganization (any such transaction being a "Reorganization") involving the Corporation and/or XXXXXXXXXX co, as the case may be, and another corporation or other entity, as a result of which the holders of Voting Shares of the Corporation or XXXXXXXXXX co, as the case may be, prior to the completion of the transaction hold less than 50% of the outstanding Voting Shares of, or otherwise do not exercise de facto control of, the successor corporation or entity after completion of the transaction; or

(c) the sale, lease, exchange or other disposition, in a single transaction or a series of related transactions, of assets representing more than 50% of the book value of all of the assets of the Corporation or XXXXXXXXXX co, as the case may be, to any other person or entity, other than a disposition to an affiliate or affiliates of the Corporation or XXXXXXXXXX co, as the case may be, in the course of a reorganization of the assets of the Corporation or XXXXXXXXXX co, as the case may be; after such disposition, the provisions hereof shall apply to the assets of the affiliate or affiliates that were previously owned by the Corporation or XXXXXXXXXX co, as the case may be; for certainty and for purposes of the foregoing, the core business of the Corporation consisting of the operation of the XXXXXXXXXX shall be deemed to be an asset the value of which exceeds 50% of the book value of all of the assets of the Corporation.

Notwithstanding the foregoing, any Reorganization or other transaction that results in current shareholders of the M Group continuing to hold at least 50% of the Voting Shares or otherwise having de facto control, directly or indirectly, of XXXXXXXXXX co or the Corporation, as the case may be (or the successor corporation or entity after a Reorganization or other transaction), shall not be a Change of Control for the purposes of an XXXXXXXXXX.

11. Additional material provisions of an XXXXXXXXXX are as follows:

(a) An XXXXXXXXXX will be an agreement entered into by the Corporation and a particular Executive. Each XXXXXXXXXX will have substantially the same terms and conditions but may differ with respect to the number of Shares to be issued and the specific dates provided therein as well as certain other matters that are not material to the rulings provided herein.

(b) An XXXXXXXXXX will be an agreement between the Corporation and an Executive under which the Corporation will agree to issue Shares to the Executive.

(c) Each Executive will receive the Shares by virtue of their employment with the Corporation.

(d) In consideration for the entry by the Corporation into an XXXXXXXXXX , an Executive will release the Corporation from all obligations that the Corporation has to the Executive in respect of their Participation under the XXXXXXXXXX Plans.

(e) An XXXXXXXXXX will provide for the issue of the Shares on the date the XXXXXXXXXX is entered into.

(f) Any Share acquired under the XXXXXXXXXX by an Executive may not be transferred by an Executive without the prior written consent of the Corporation.

(g) In order to provide the Executive with liquidity while the Corporation remains a private corporation, the Corporation or its nominee will, subject to such other provisions of the XXXXXXXXXX as may apply, be required to, or have the right to purchase Shares from an Executive in the circumstances and to the extent provided as follows:

(i) Upon the Termination of an Executive's employment prior to the Monetization Date:

(A) The Corporation in its discretion shall have the option to purchase and the Executive shall be required to sell all of the Shares acquired under the XXXXXXXXXX and held by the Executive.

(B) The Corporation shall purchase, and the Executive shall sell, Preference Shares with an aggregate value equal to an amount specified in the XXXXXXXXXX , as the "Pre-Monetization Amount" less the aggregate amount, if any, previously paid to the Executive for the purchase of any Preference Shares.

(C) The purchase price payable for any Share to be purchased and sold in accordance with the foregoing shall be the Fair Market Value per Share as applicable at the Termination Date.

(D) Any Shares not purchased and sold in accordance with the foregoing and held by the Executive at the Monetization Date shall be sold by the Executive and purchased by the Corporation on the Monetization Date for the Fair Market Value per Share applicable as at the Monetization Date multiplied by the number of Shares held.

(ii) Upon the Termination of an Executive's employment on or after the Monetization Date, the Corporation shall purchase, and the Executive shall sell, all of the Shares held by the Executive at the Fair Market Value per Share applicable as at the Termination Date.

(iii) Subject to 11(v) below, upon the request of an Executive at any time prior to the Monetization Date, the Corporation shall purchase all or any portion of the Preference Shares held by the Executive up to an aggregate value not exceeding the Pre-Monetization Amount specified in the XXXXXXXXXX , less the aggregate amount, if any, previously paid to the Executive for the purchase of any Preference Shares.

(iv) Subject to 11(v) below, upon or after the Monetization Date and at the request of the Executive, the Corporation shall purchase any Shares specified by the Executive as follows:

(A) at any time, all or any portion of the Preference Shares;

(B) on a one-time basis and after all of the Preference Shares have been sold by the Executive, not less than fifty percent (50%) of the Common Shares then held by the Executive;

(C) on a one-time basis, the balance of the Common Shares then held by the Executive; and,

(D) the purchase price payable for any Share to be purchased and sold at the request of an Executive shall be the Fair Market Value per Share applicable as at the date of the request.

(v) Upon the death of the Executive, the Corporation shall purchase and the legal personal representative of the Executive shall sell all, and not less than all, of the Shares acquired under the XXXXXXXXXX that are held by the Executive immediately before death. The purchase price payable for the Shares shall be the Fair Market Value per Share applicable as at the date of death, except that where the provisions set out in 11(g)(iii) or (iv) above apply, the purchase price will be determined as set out therein.

(h) The Corporation shall have the right to cause its nominee to purchase any Shares from an Executive, which the Corporation would otherwise be required to purchase or have a right to purchase as described above.

(i) Where the Executive has received advice that it may be advantageous to the Executive from a tax perspective to do so, the Executive may request and the Corporation shall be required to cause its nominee to purchase the Shares so that the Corporation will not purchase the Shares.

(j) Subject to 11(l) below, where the Corporation or an affiliate of the Corporation terminates the Executive's employment for any reason, the Executive in his or her sole discretion may defer the purchase and sale of all or any portion of any Shares from the date otherwise applicable, as described above, to a date (the "Deferred Closing Date") which is not more than XXXXXXXXXX months after the date the Shares were issued to the Executive. The Deferred Closing Date may subsequently be restated as an earlier date that is subsequent to the date otherwise applicable, as described above. Notwithstanding these provisions, in the event of the death of the Executive, the date of sale shall be the date as determined under 11(g)(v) above.

(k) Where an Executive has elected to defer the purchase and sale of any Shares, the purchase price payable for the Shares shall be the Fair Market Value per Share applicable as at the date which is XXXXXXXXXX days prior to the Deferred Closing Date (the "Deferred Valuation Date") multiplied by the number of Shares held, less the amount of any dividends paid or payable on the Shares and received by the Executive that are declared on such Shares after the Deferred Valuation Date. However, in the event of the Executives death, the purchase price will be the Fair Market Value per Share as determined under 11(g)(v) above.

(l) Notwithstanding 11(j) and 11(k) above, the Corporation may require the completion of a purchase and sale of the Shares at an earlier date if the Corporation would have had the immediate right to exercise a right (a "Take Along Right") as described in 11(o) and 11(r) below.

(m) The Corporation will not be permitted to undertake transactions, which could reasonably be expected to materially and adversely affect the rights of the Executive as a holder of Shares, unless the Executive consents or all necessary arrangements are made so that the Executive will not be materially and adversely affected.

(n) The Corporation shall not offer to issue or sell any shares or securities convertible into shares in the capital of the Corporation without giving the Executive the right to participate on a pro rata basis in any such offering on the same terms and conditions offered to any third party so that the Executive will be permitted to maintain his or her same equity ownership in the Corporation.

(o) If XXXXXXXXXX co wishes to sell or transfer any shares of the Corporation to a third party that deals at arm's length with XXXXXXXXXX co, except as otherwise provided in 11(p) below, at the request of XXXXXXXXXX co, the Executive will be required to sell or transfer a pro rata portion of the Executive's Shares to the third party on substantially the same terms and conditions as are accepted by XXXXXXXXXX co.

(p) The Executive will not be required to sell any Shares as provided in 11(o) above or in 11(r) below, unless the Executive is provided with liquidity rights in respect of any securities received in respect of the sale or transfer, that are no less favourable than the liquidity rights provided under the XXXXXXXXXX .

(q) If XXXXXXXXXX co wishes to sell or transfer any shares of the Corporation to a third party, including a sale of shares through a public offering, the Executive will be entitled to sell or transfer a pro rata portion of the Executive's Shares to the third party on substantially the same terms and conditions as are accepted by XXXXXXXXXX co.

(r) Subject to 11(m) and 11(p) above, the Corporation or XXXXXXXXXX co will have the right to acquire all of the Executive's Shares if XXXXXXXXXX co or the Corporation are to participate in any reorganization that will require the receipt of shares or other securities by the Executive, and the Executive does not fully cooperate with XXXXXXXXXX co or the Corporation in facilitating the reorganization.

(s) If the Corporation completes a public offering of its shares so that there is a public market for the Shares held by the Executive, the XXXXXXXXXX shall be terminated so that the Executive will have no further right or obligation to sell the Shares to the Corporation or its nominee otherwise than in respect of the

completion of a request described in 11(g)(iii) or (iv) above, a deferral as described in 11(j) and 11(k) above or if the Executive and the Corporation otherwise agree.

(t) Notwithstanding any of the above, any purchase of Shares by the Corporation under the XXXXXXXXXX must be in compliance with the Business Corporations Act (XXXXXXXXXX), any other applicable legislation and the terms of various indentures as specified in the XXXXXXXXXX. In the event one or more purchases of Shares does not so comply, only those purchases that do comply will be completed.

(u) Subject to 11(j), above, unless the Corporation and the Executive otherwise agree, the closing of the purchase and sale of any Shares pursuant to 11(g)(i) above, shall take place on the XXXXXXXXXX day following the Termination Date except that if the Corporation gives notice that it will acquire all of the Executive's Shares as provided in 11(g)(i)(A) above, then the purchase and sale of all the Shares shall take place on the XXXXXXXXXX day following the date of notice or such later date as the parties may agree upon, in order to obtain a valuation for the Shares.

(v) Under the terms of XXXXXXXXXX with some of the Executives, an Executive will have fewer liquidity rights. In these cases, the Corporation may have the right to acquire the Shares from the Executive for a nominal amount if the Executive voluntarily chooses to leave employment prior to a date specified in the XXXXXXXXXX (the "Forfeiture Date"). The Executive will not have any right to sell Shares prior to the Forfeiture Date (e.g., pursuant to 11(g)(iii) and (iv)) otherwise than pursuant to 11(q) without the consent of the Corporation.

Proposed Transactions

12. The Corporation will file articles of amendment to create Preference Shares.

13. The Corporation will enter into an XXXXXXXXXX with each particular Executive, setting out the number of Preference Shares and Common Shares to be issued to the Executive. The aggregate of the fair market value of the Shares to be issued to an Executive will be based upon that Executive's vested and unvested entitlement to Incentive Compensation at the time the Shares are issued.

14. The Corporation will issue the Shares as provided in the XXXXXXXXXX to the Executives on the date the XXXXXXXXXX is entered into.

15. An Executive will receive no consideration from the Corporation for the disposition of their rights under the XXXXXXXXXX Plans other than the Shares and rights under the XXXXXXXXXX.

16. Pursuant to the provisions of the Business Corporation Act (XXXXXXXXXX) and, with respect to the issuance of Preferred Shares and Common Shares, pursuant to an XXXXXXXXXX, the Corporation will add to the stated capital accounts which it maintains for the Common Shares and will maintain for the Preferred Shares, an aggregate amount not exceeding the Corporation's estimate of its current liability owing to the Executives under the XXXXXXXXXX Plans.

17. The XXXXXXXXXX Plans operated in respect of an Executive will be terminated forthwith after the Executive and the Corporation enter into an XXXXXXXXXX.

Purpose of the Proposed XXXXXXXXXX and Proposed Transactions

18. The original intention of the Corporation in implementing the XXXXXXXXXX Plans was to enhance the Corporation's ability to attract and retain highly qualified employees and to promote a greater alignment of interests between such employees and the shareholders of the Corporation. The XXXXXXXXXX Plans were designed to reward Executives based upon an increase in the value of the shares of the Corporation without initially conferring rights on the Executives as shareholders. The Corporation's initial concerns in permitting the Executives to become shareholders except under limited circumstances have diminished and given the more favourable tax treatment that Executives may realize by acquiring and holding Shares, the Corporation considers it desirable to enter into the XXXXXXXXXX. The terms of each XXXXXXXXXX will be consistent with the Corporation's original intentions and objectives in implementing the XXXXXXXXXX Plans. The issuance of Shares by the Corporation to Executives may also remove the requirement for the Corporation to report a financial liability on its balance sheet.

Additional Information

19. To the best of your and the Corporation's knowledge, none of the issues involved in this ruling are:

(i) in an earlier return of the Corporation, a Participant, or any person related to the Corporation or a Participant;

(ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation, a Participant, or any person related to the Corporation or a Participant;

(iii) under objection by the Corporation, a Participant, or any person related to the Corporation or a Participant;

(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; nor

(v) the subject of a ruling previously issued by the Directorate to the Corporation.

Rulings

Provided that:

(i) the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, the proposed XXXXXXXXXX, the proposed transactions and the purpose of the proposed XXXXXXXXXX and the proposed transactions;

(ii) the wording of the XXXXXXXXXX are and continue to be substantially as described above;

(iii) an initial public offering of stock by the Corporation does not take place prior to the implementation of the proposed transactions such that the Corporation will not be required at the time, under the terms of the XXXXXXXXXX Plans, or otherwise, to issue shares to each Participant as a consequence to a Participant's entitlement to Incentive Compensation; and

(iv) each Executive deals at arm's length with the Corporation immediately after the Executive enters into an XXXXXXXXXX with the Corporation,

we rule as follows:

A. Paragraph 7(3)(a) of the Act will apply where, as described in 13 above, an Executive enters into an XXXXXXXXXX with the Corporation in exchange for a release of any entitlement under the XXXXXXXXXX Plans such that, except as provided in section 7 of the Act as provided in C below, the Executive shall be considered to have neither received nor enjoyed any benefit as a result of entering into the XXXXXXXXXX or from acquiring Shares under the XXXXXXXXXX, to which subsection 5(1) or paragraphs 6(1)(a) or (i) of the Act would otherwise apply.

B. Paragraph 7(1)(b), and subsections 7(1.4) and 7(1.7) of the Act will not apply as a consequence of the Corporation and an Executive entering into an XXXXXXXXXX.

C. Subsection 7(1.1) and paragraph 7(1)(a) of the Act will apply to deem the Executive to have received a benefit calculated in accordance with those provisions in the year the Executive disposes of or exchanges a Share acquired by the Executive through the XXXXXXXXXX.

D. The right of an Executive to sell any Shares to the Corporation or its nominee under the XXXXXXXXXX as described in 10 and 11 above will not constitute a "salary deferral arrangement" as defined in subsection 248(1) of the Act.

E. Provided the conditions in paragraph 110(1)(d.1) of the Act are met, an Executive may deduct an amount, as calculated under that provision, in the year in which the Executive is deemed to have received a benefit as described in C above.

F. By virtue of paragraph 84(1)(b) of the Act, subsection 84(1) of the Act will not apply to the increase in the stated capital accounts as described in 16 above, in respect of the issue of Shares under the XXXXXXXXXX, where the increase in the stated capital accounts in respect of the Shares does not exceed the fair value of the Executives' past services in consideration of which the Shares are issued.

G. Provided a nominee of the Corporation is not acting as an agent of the Corporation, subsection 84(3) of the Act will not apply upon a disposition of any Shares by an Executive to the nominee of the Corporation, made in accordance with the terms of the XXXXXXXXXX, as described in 11(g) and 11(h) above.

H. Provided a nominee of the Corporation is not acting as an agent of the Corporation, and that, immediately after the disposition, the nominee is dealing with the Executive at arm's length, subsection 84.1(1) of the Act will not apply upon the disposition of any Shares by an Executive to the nominee of the Corporation, made in accordance with the terms of the XXXXXXXXXX , as described in 11(g) and 11(h) above.

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 70-6R5 dated May 17, 2002, and are binding on the CRA provided that the XXXXXXXXXX are implemented by XXXXXXXXXX.

Comments

1. The term "Fair Market Value per Share" for purposes of the XXXXXXXXXX, as defined above in (i) of the Definitions and Abbreviations, may or may not be equivalent to the fair market value of a Preference Share or a Common Share, as the case may be, at any particular time and nothing in this ruling should be construed as implying our acceptance that the Fair Market Value per Share represents the fair market value of a Preference Share or a Common Share, as the case may be.

2. The fair value, as that term is used above and in the XXXXXXXXXX, of any past services received by the Corporation is a question of fact and nothing in this ruling should be construed as implying our acceptance that the addition to the stated capital for the Shares represents the fair value of such past services being received by the Corporation for the Shares.

3. Where an Executive has, in accordance with 11(j) and 11(k) above, deferred the closing of the purchase and sale of a Share from the Termination Date, neither the Termination Date nor the Deferred Valuation Date will, solely as a consequence of the deferral, be treated as the date of a disposition or exchange of the Share for the purposes of Ruling C or E, or for the purposes of determining if the Share is a "qualified small business corporation share" as defined in subsection 110.6(1) of the Act.

4. 11(n) above, provides that the Corporation will agree to issue shares or securities to an Executive in the event certain transactions occur. CRA has not specifically reviewed the tax consequences of this particular provision due to its remote nature and nothing in this ruling should be construed as implying CRA has determined or concurred with any tax consequences that may occur upon its application.

5. While a ruling has not been requested, in our view the provisions of paragraph 7(3)(b) of the Act will apply in respect of the proposed transactions such that the income for a taxation year of any person including the Corporation, is deemed to be not less than its income for the year would have been if a benefit had not been conferred on the Executive by the sale or issue of the securities.

Yours truly,

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