7 July 2004 Income Tax Severed Letter 2004-0067551R3 - Supplemental ruling to 2003-000851

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.

SUMMARY: Supplemental ruling to 2003-000851—ITA-5, 6—Advance income tax ruling—Amendments to advance income tax rulingissued in 2003.

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: Will clarification of administration of the Plan impact on previous rulings given?

POSITION: No

REASONS: The proposed Top-Up / Claw-Back payments do not impact on rulings given in 2003-000851

XXXXXXXXXX 2004-006755

XXXXXXXXXX, 2004

Re: Supplemental Income Tax Ruling Request

XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX wherein you request a clarification to the advance income tax ruling (the “2003 Ruling”) issued by us for the above corporation on XXXXXXXXXX, 2003 (our document 2003-000851). In particular, you would like to amend paragraph 14 of the 2003 Ruling to read as follows (changes are in bold). All capitalized terms have the meaning assigned in the 2003 Ruling.

14. In accordance with your additional submissions and our various conversations (XXXXXXXXXX), we understand that the amended section XXXXXXXXXX of the Plan will operate as follows:

If the Board elects to proceed by issuing the number of Shares which when multiplied by the Surrender Price will equal the Share Premium (i.e. pursuant to section XXXXXXXXXX of the Plan), the said Shares will be legally and beneficially vested in the Participant. The Participant will be required to sign a direction to a broker authorizing the immediate sale of the Shares. The broker will sell the Shares and the proceeds, net of brokerage fees, will be paid to the Participant. If the proceeds of the sale of the Shares (computed prior to the deduction for brokerage fees) are more than the Share Premium, the Participant will be required to refund the excess (i.e. the “Claw-Back”) to the Corporation or, in the case of a Participant employed by a Subsidiary, the Subsidiary, in cash. If the proceeds of the sale of the Shares (computed prior to the deduction for brokerage fees) are less than the Share Premium, the Corporation or, in the case of a Participant employed by a Subsidiary, the Subsidiary, will pay the shortfall (i.e. the “Top-Up”) to the Participant in cash.

If the Board elects to proceed by issuing Shares to effect a cashless exercise of the Option (i.e. pursuant to section XXXXXXXXXX of the Plan), the Shares will be legally and beneficially vested in the Participant. The Participant will be required to sign a direction to a broker authorizing the immediate sale of the Shares. The broker will sell the Shares. The amount that would have been payable to the Corporation as the Exercise Price had the Participant exercised the Option will be paid to the Corporation. The balance, representing the Share Premium, net of brokerage fees and the Exercise Price, will be paid to the Participant.

We confirm that the above amendment to the 2003 Ruling will not affect the rulings or comments given in the 2003 Ruling. In addition, we add the following to the “Comments” in the 2003 Ruling:
• g. If the Participant pays a “Claw-Back” amount to the Corporation or the Subsidiary as described in paragraph 14 above, the Participant will not be entitled to a deduction from income for the Claw-Back by any provision in section 5 to 8 of the Act.
• h. If the Corporation or the Subsidiary pays a “Top-Up” amount to the Participant as described in paragraph 14 above, the Top-Up amount will be included in the income of the Participant by virtue of section 5 or 6 of the Act. The Top-Up amount will be considered to have been received by the Participant in respect of employment exercised in Canada to the extent that it relates to Options granted to the Participant while he was employed in Canada.

Yours truly,

XXXXXXXXXX

For Director

Financial Industries Division

Income Tax Rulings Directorate