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 certain amendments to a DSU Plan affect its status as a plan that complies with paragraph 6801(d)?
Position: No.
Reasons: The Plan continues to comply with the requirements of paragraph 6801(d) of the Regulations.
XXXXXXXXXX 2004-007161
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
Deferred Share Unit Plan for Non- Employee Directors (the "Directors' DSU Plan")
XXXXXXXXXX (the "Corporation") (XXXXXXXXXX)
This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the Corporation. We also acknowledge our telephone conversations (XXXXXXXXXX), which resulted in amendments to the Directors's DSU Plan and to the facts and proposed transactions as evidenced by your letters of XXXXXXXXXX.
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.
DEFINITIONS AND ABBREVIATIONS
In this letter, the following terms have the meanings specified:
"Beneficiary" means a person or persons each of whom, on the date of a Participant's death, is a person designated in accordance with Section XXXXXXXXXX of the Directors' DSU Plan and the laws applying to the Employees' DSU Plan, or where no such person has been validly designated by the Participant, or where no such person survives the Participant, the Participant's legal representatives;
"Business Day" means any day other than a Saturday, Sunday or any statutory holiday in the Province of XXXXXXXXXX , on which banks are generally open for business in XXXXXXXXXX;
"Change in control" means any change in the holding, direct or indirect, of the securities of the Corporation as a result of which a person (as defined in the XXXXXXXXXX), or a group of persons, are in a position to exercise effective control of the Corporation;
"CRA" means Canada Revenue Agency;
"DSU" or "Deferred Share Unit", means a unit credited by means of a bookkeeping entry on the books of the Corporation to a Participant's account in accordance with the terms and conditions of the Directors DSU Plan, the value of which, on a particular date, shall be equal to the Market Value of one Share;
"Regulations" means the Income Tax Regulations; and
"Termination date" means the earliest date on which both the following conditions are met: the Director (1) has ceased to be a Director as defined above for any reason whatsoever, including the death of the Director, and (2) is neither an employee of the Corporation or an Affiliate nor a member of the board of an Affiliate.
FACTS
1. The Corporation established the Directors' DSU Plan effective XXXXXXXXXX (however, no DSUs were granted to Directors under the Directors' DSU Plan as of XXXXXXXXXX). The Directors' DSU Plan is the subject of advance income tax rulings #990043 dated XXXXXXXXXX, 1999 and #990991 dated XXXXXXXXXX , 1999 (collectively, "the Rulings"). It is a prescribed plan under paragraph 6801(d) of the Regulations. Only directors, which are members of the Board who are not otherwise employees of the Corporation or of an Affiliate of the Corporation, can participate to the Directors' DSU Plan (the "Participants").
2. The word "Affiliate" is defined in Section XXXXXXXXXX of the Directors' DSU Plan to mean an "Affiliate of the Corporation as that term is defined in paragraph 3 of Revenue Canada's Interpretation Bulletin IT-337R3, Retiring Allowances.
3. Section XXXXXXXXXX of the Directors' DSU Plan (subject to a Participant's Termination Date occurring within 90 days following Change in Control of the Corporation) currently provides that the Entitlement Date of a Participant shall be 30 days after a Participant's Termination Date. On the Entitlement Date, the DSUs credited to the Participant's account under the Directors' DSU Plan are valued and become payable to a Participant.
Under Section XXXXXXXXXX of the current version of the Directors' DSU Plan, a Participant or the legal representative of a Participant's estate, as applicable, does not have the option of electing an Entitlement Date. As a result of the restrictions noted above, all DSUs credited to a Participant are automatically redeemed 30 days following the Participant's Termination Date; a Participant, or the legal representative of a Participant's estate, as applicable, has no choice as to when DSUs credited to the Participant are redeemed following his or her Termination Date.
4. Section XXXXXXXXXX of the Directors' DSU Plan currently contemplates that the Corporation may pay the entire value of any DSU entitlement of the Participant under the Directors' DSU Plan in cash or in shares purchased on the open market on behalf of the Participant or the Participant's estate. Section XXXXXXXXXX of the Directors' DSU Plan sets out the procedure for the purchase of shares on the open market.
5. Section XXXXXXXXXX of the Directors' DSU Plan provides as follows:
"The Board may from time to time amend, suspend or terminate the Plan in whole or in part. However, any such amendment, suspension or termination shall not adversely affect the rights accrued to any Participant under any Agreement existing at the time of such amendment, suspension or termination without the consent of the affected Participant.
If the Board terminates the Plan, prior grants of DSUs shall, at the discretion of the Board, either (a) become immediately payable in accordance with the terms of the Plan in effect at such time, or (b) remain outstanding and in effect and paid in due course upon the Participant's Termination Date for purposes of the Plan in accordance with the applicable terms and conditions applicable to such DSUs immediately prior to the termination of the Plan."
6. The Rulings, were provided with the following condition, as stated, in the final paragraph of our letter of XXXXXXXXXX, 1999:
"The above amended advance income tax rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and are binding upon Revenue Canada provided the Directors' Plan is implemented within six months of the date of this letter. Furthermore, these rulings, as well as the rulings provided in Advance Income Tax Rulings 990043, will be binding only in respect of the last version of the Directors' Plan, as submitted for our review, and will not be binding in the event the Directors' Plan is amended as outlined in subparagraph 6(m) above (which refers to section XXXXXXXXXX of the Directors' Plan)".
7. Section XXXXXXXXXX of the Directors' DSU Plan currently provides that in the event of a Participant's death, any and all DSUs then credited to the Participant's account shall become payable to the Participant's estate in accordance with section XXXXXXXXXX thereof. The Directors' DSU Plan currently does not require the Participant to designate a Beneficiary to receive any benefits that are payable under the Directors' DSU Plan.
PROPOSED AMENDMENTS
8. Pursuant to its amending power in Section XXXXXXXXXX of the Directors' DSU Plan, the Corporation proposes to amend the Directors' DSU Plan, with effect as of the date the rulings requested herein are received. Accordingly, the amendments described below would apply to a Participant who is not entitled to payment of the DSUs before the date the rulings requested herein are received.
9. The Corporation is proposing to amend the Directors' DSU Plan to update the definition of the word "Affiliate" found in Section XXXXXXXXXX of the Directors' DSU Plan to reflect the cancellation and replacement of IT-337R3 with IT-337R4, as well as Revenue Canada's name change to the CRA.
10. The Corporation is proposing to amend Section XXXXXXXXXX of the Directors' DSU Plan in order to provide that, subject to a Change in Control of the Corporation, the Participant, or the Participant's Beneficiary, as applicable, may elect an Entitlement Date that is not before the later of 1 Business Day after the date on which the election is filed with the Corporation and 1 Business Day after the Participant's Termination Date, and not later than XXXXXXXXXX of the calendar year commencing immediately after the Participant's Termination Date. Consequently, all amounts would continue to be received by a Participant or a Participant's Beneficiary under the Directors' DSU Plan after the time of the Participant's death or retirement from, or loss of, the office or employment and no later than the end of the first calendar year commencing thereafter, as required under subparagraph 6801(d)(i) of the Regulations.
11. The Corporation is proposing to amend Section XXXXXXXXXX to provide that DSUs will only be settled in cash. In addition, as a result of this change, the Corporation proposes that Section XXXXXXXXXX of the current Directors' DSU Plan, which sets the procedure for the purchase of Shares on the open market, be deleted, as it is no longer required. Further, the Corporation proposes that the definition of "Aggregate Purchase Price" contained in Section XXXXXXXXXX of the current Directors' DSU Plan also be deleted, as it is no longer required.
12. The Corporation is proposing to amend Section XXXXXXXXXX to clarify that, notwithstanding the Corporation's power to amend and terminate the Directors' DSU Plan, any amendment or termination of the Directors' DSU Plan shall be such that the Directors' DSU Plan continuously meets the requirements of paragraph 6801(d) of the Regulations or any successor provision thereto and that if the Directors' DSU Plan is terminated, prior awards of DSUs shall remain outstanding and in effect and paid in due course upon the Participant's Termination Date for purposes of the Directors DSU Plan in accordance with the applicable terms and conditions applicable to such DSUs immediately prior to the termination of the Directors' DSU Plan.
13. The Corporation is proposing to amend Section XXXXXXXXXX of the Directors' DSU Plan to require a Participant to designate in writing a person or persons, each of whom is a dependant or relation of the Participant, as a Beneficiary to receive any benefits that are payable under the Directors' DSU Plan upon the death of such Participant. Where the Participant designates more than one person as Beneficiary, the Participant shall be required to indicate the percentage of benefits under the Directors' DSU Plan that shall be payable to each such person. Consequently, after a Participant's death, the Directors' DSU Plan would provide for payment to a person who is a dependent or relation of the Participant, as is permitted under the preamble paragraph in paragraph 6801(d) of the Regulations.
PURPOSE OF THE PROPOSED AMENDMENTS
14. The purpose of the amendments to Section XXXXXXXXXX of the Employees' DSU Plan is to provide greater flexibility to the Participants in the determination of an Entitlement Date and the Corporation no longer requires the option to settle DSUs under the Directors DSU Plan in shares.
15. The amendment to Section XXXXXXXXXX will clarify entitlements and rights under the Directors' DSU Plan following the death of a Participant, and permit a Participant to designate one or more persons as a Beneficiary under the Directors' DSU Plan.
16. The other amendments to the Directors' DSU Plan are intended to clarify or correct existing terms of the agreement.
17. We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in this request for ruling:
(i) is in an earlier return of the Corporation or a related person,
(ii) is being considered by a Tax Services Office or Taxation Center in connection with a previously filed return of the Corporation or a related person,
(iii) is under objection by the Corporation or a related person,
(iv) is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired, and
(v) is the subject of a ruling previously issued by the Directorate to the Corporation or a related person other than as disclosed herein.
18. The mailing address of the Corporation is XXXXXXXXXX. The Corporation files its income tax returns at the XXXXXXXXXX Taxation Center and deals with the XXXXXXXXXX Tax Services Office.
RULINGS GIVEN
Provided the preceding statements constitute a complete disclosure of all the relevant facts, the proposed amendments to the Directors' DSU Plan and the purpose of the proposed amendments to the Directors' DSU Plan, and provided the Directors' DSU Plan is amended as proposed, we confirm that:
A. The amendments described in paragraphs 9 to 13 above, will not disqualify the Directors' DSU Plan from being a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations.
B. Provided the Directors' DSU Plan was implemented prior to the deadlines set out in the Rulings, the rulings issued in the Rulings will continue to be binding on the CRA in accordance with the practice outlined in Information Circular 70-6R5 Advance Income Tax Rulings dated May 17, 2002, and are binding on the CRA provided that the Directors' DSU Plan is amended by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
Section Manager
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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