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 SDA rules not apply because of the 3-year bonus payment rule?
2. Can all amounts retain their identity as they flow from the mutual fund trust through the EBP to the corporation?
Position:
1. Yes.
2. No.
Reasons:
1. The Plan awards a deferred unit in a year that is paid out within 3 years.
2. Amounts can only retain their character as interest, dividends or capital as provided under the Act. There is no provision that allows the flow through of capital amounts paid to the employer in the present case.
XXXXXXXXXX 2004-007521
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, and your electronic correspondence of XXXXXXXXXX, in respect of your request for an advance income tax ruling on behalf of the above-noted corporation.
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) "Affiliated Entity" means: any affiliated body corporate of the Company within the meaning of subsection 2(2) of the Canada Business Corporations Act, which is also a related person, including Holdco, as well as the Fund, the Limited Partnership, and any other entity declared by the Board to be an affiliated entity for the purpose of the Plan;
(c) "Board" means: the Board of Directors of the Corporation;
(d) "Cause" means: any event or circumstance which, pursuant to applicable law, constitutes a sufficient cause for dismissal without any notice, payment in lieu of notice, severance pay or any indemnity whatsoever;
(e) "Change of Control" means: (i) a sale of all or substantially all of the assets of the Corporation or an Affiliated Entity to a person or group who is not an affiliate of XXXXXXXXXX (collectively, the "Restricted Group"),
(ii) a sale, directly or indirectly (including, without limitation, the transfer of ownership of Units by the Fund, the Corporation, any Affiliated Entity or any combination thereof) that results in more than 50% of the voting securities of the Corporation or an Affiliated Entity being held, directly or indirectly, by a person or group in which any member of the Restricted Group (other than XXXXXXXXXX) (or any such member's respective affiliates) holds, directly or indirectly, less than 10% of the voting securities thereof, or
(iii) a merger or consolidation of the Fund, the Corporation or an Affiliated Entity into another person which is not an affiliate of any member of the Restricted Group,
if and only if any such event listed in clauses (i) through (iii) of this definition results in the inability of the Restricted Group (or any of their affiliates) as a whole to elect a majority of the Board of Directors of the Corporation or the resulting entity; provided, however, that, for purposes of determining whether any event listed in clauses (i) through (iii) of this definition has occurred, each holder of Fund Units shall be deemed to hold a percentage of the voting securities of the Corporation held by the Fund in the same proportion as the percentage of Units held by such holder.
For the avoidance of doubt, in no event shall either:
(a) the conversion or exchange alone of interests in the Limited Partnership, shares of the Corporation or shares of Holdco for Units, or
(b) the reorganization that occurred for the purposes of the initial public offering as described in 1 below constitute a Change of Control hereunder.
Notwithstanding the foregoing, if any such event listed in clauses (i) through (iii) of this definition results in the sale to, or merger or consolidation with, an affiliate of the Restricted Group or any person or group in which any member of the Restricted Group (or any such member's respective affiliates) is invested (whether or not any such member holds any voting stock thereof), that in either case is engaged in a business that is unrelated in all respects to the business of the Corporation (an "Unrelated Affiliate") and any such transaction results in the Corporation becoming either a wholly owned subsidiary of an Unrelated Affiliate or a division of an Unrelated Affiliate, then such transaction shall be deemed a Change of Control, whether or not any member of the Restricted Group has the ability to elect a majority of the board of directors of the Unrelated Affiliate;
(f) "CRA" means: the Canada Revenue Agency;
(g) "Committee" means: such committee that the Board has, from time to time, made responsible for matters relating to executive compensation;
(h) "Corporation" means: XXXXXXXXXX,
XXXXXXXXXX Tax Services Office,
XXXXXXXXXX Tax Centre;
(i) "Corporation Three" means: XXXXXXXXXX;
(j) "Corporation Two" means: XXXXXXXXXX;
(k) "Cumulative Distributable Income Increase" means: the annual growth in the distributable income of the Fund per Unit;
(l) "Determination Date" means: the date an Incentive Amount is determined for a Participant;
(m) "Eligible Employee" means: an employee, officer, or director of the Corporation or of an Affiliated Entity;
(n) "Employer" means: in relation to a Participant, the Corporation or the Affiliated Entity to which the Participant provides employment services and from whom the Participant receives the Participant's remuneration;
(o) "Excess Units" means: Units that are subject to unvested RUs that have been forfeited and cancelled in accordance with the Plan;
(p) "Fund" means: XXXXXXXXXX
XXXXXXXXXX Tax Services Office,
XXXXXXXXXX Tax Centre;
(q) "Group" means: collectively, the Corporation, Holdco, Trust One, the Limited Partnership, the Fund, and any other person, partnership or entity that is related to or affiliated with the Corporation;
(r) "Holdco" means: XXXXXXXXXX
XXXXXXXXXX Tax Services Office,
XXXXXXXXXX Tax Centre;
(s) "Incentive Amount" means: in respect of RUs to be credited to the Participant's Account, the dollar value of the Participant's award as established by the Board to be the Participant's bonus for a Performance Cycle, expressed as a fixed amount or a fraction or multiple of a Participant's remuneration, and indicated in a Participation Agreement in respect of RUs to be credited to a Participant's Account;
(t) "Limited Partnership" means: XXXXXXXXXX;
(u) "Long-Term Disability" means: in relation to a Participant, being unable (with reasonable accommodation by the Corporation) to engage in the activities required by the Participant's job with the Corporation or an Affiliated Entity by reason of any medically determined physical or mental impairment which can reasonably be expected to result in death or which has lasted or can reasonably be expected to last for a continuous period of not less than XXXXXXXXXX;
(v) "Participant" means: an Eligible Employee who has been credited RUs under the Plan;
(w) "Participant's
Account" means: an account maintained in respect of each Participant's participation in the Plan;
(x) "Participation Agreement" means: a signed agreement in writing between the Corporation and a Participant that sets out the Participant's Incentive Amount for a particular Performance Cycle as well as the Performance Based Vesting Conditions and the vesting dates applicable to the Incentive Amount;
(y) "Performance Based RUs" means: RUs credited to a Participant's Account that are subject to the Performance Based Vesting Condition;
(z) "Performance Based Vesting Condition" means: the condition set out in 13(f) below;
(aa) "Performance Cycle" means: the XXXXXXXXXX period beginning January 1 of the year in respect of which the Board has determined that an award of an Incentive Amount to a particular Participant will be effective, to December 31st of the XXXXXXXXXX year following that year;
(bb) "Performance Period" means: a fiscal year of the Fund;
(cc) "Plan" means: XXXXXXXXXX as described herein;
(dd) "Regulations" means: The Income Tax Regulations;
(ee) "Restricted Unit" or "RU" means: a right to receive a Unit subject to the terms and conditions of this Plan and includes fractions of a restricted unit calculated to the second decimal;
(ff) "Retirement" means: a cessation of employment, other than a Termination, whereby the Participant receives an immediate pension benefit under the Corporation's pension plan;
(gg) "Termination" means: in respect of a Participant, the cessation of employment of a Participant with an Employer for any reason other than the transfer of the Participant to the employment of another Employer;
(hh) "Time Based RUs" means: RUs credited to a Participant's Account that are subject to a Time Based Vesting Condition;
(ii) "Time Based Vesting Condition" means: the condition set out in 13(b) below;
(jj) "Trust" means: the trust established under, and governed by, the Plan, and administered in accordance with the terms of an agreement entered into between the Corporation and the Trustee;
(kk) "Trust One" means: XXXXXXXXXX
XXXXXXXXXX Tax Services Office,
XXXXXXXXXX Tax Centre;
(ll) "Trustee" means: the resident, independent trust company (also referred to as the "Plan Custodian") that deals at arm's length with the Corporation and is appointed by the Board from time to time to administer the Trust and to purchase, hold and distribute the Units and other property of the Trust in accordance with the Plan;
(mm)"Unit" means: units or installment receipt units of the Fund, as traded on the XXXXXXXXXX Stock Exchange; and
(nn) "Vesting Conditions" means: (i) with respect to XXXXXXXXXX % of all Restricted Units credited to a Participant, the Time Based Vesting Condition, and
(ii) with respect to the remaining XXXXXXXXXX % of all Restricted Units credited to a Participant, the Performance Based Vesting Condition which must be met on a cumulative basis over the relevant Performance Cycle.
In addition, in this letter:
(oo) the term "securities has the meaning assigned by subsection 7(7) of the Act, the terms, "employee", "officer", "mutual fund trust", and "taxable Canadian corporation" have the meanings assigned to them by subsection 248(1) of the Act, and the term "arm's length" and "related persons" have the meaning assigned by subsection 251(1) of the Act.
Facts
1. The Fund is a mutual fund trust that was settled on XXXXXXXXXX . On XXXXXXXXXX , an offering document for the sale of Units to the public was filed by the Fund. The proceeds of this offering were used by the Fund, through a newly constituted wholly-owned trust (Trust One) to purchase an equity interest in the Limited Partnership. As part of a reorganization that occurred immediately prior to the public offering, an existing partnership was wound up and the assets were distributed to its partners, XXXXXXXXXX , on a pro rata basis. XXXXXXXXXX , Corporation Two and Corporation Three were then wound up into Holdco (under its previous name, XXXXXXXXXX ) and the business formerly carried on by the former limited partnership was continued by Holdco.
2. The Fund is a beneficiary of Trust One.
3. Trust One holds a XXXXXXXXXX % interest in the Limited Partnership.
4. The Limited Partnership holds XXXXXXXXXX % control of Holdco.
5. Holdco is a taxable Canadian corporation that was incorporated on XXXXXXXXXX , as XXXXXXXXXX and is continued under the laws of Canada. Holdco has a XXXXXXXXXX fiscal year end.
6. Holdco holds XXXXXXXXXX % control of the Corporation.
7. The Corporation is a taxable Canadian corporation that was incorporated on XXXXXXXXXX , as XXXXXXXXXX . The Corporation has a XXXXXXXXXX fiscal year end.
8. The Group has previously operated a plan that permitted certain employees of the Group to purchase shares of the capital stock of Corporation Two. The shares of Corporation Two that were acquired under this plan, were replaced with Units. The Group has also previously provided certain employees with options to acquire shares of the capital stock of Corporation Three. These prior transactions are provided for disclosure purposes only and have no impact on the current proposals.
Proposed Transactions
9. The Corporation proposes to establish the Plan for the benefit of Eligible Employees.
10. Subject to the issuance of a favourable ruling, the Plan is to be effective as of XXXXXXXXXX
Proposed Plan
Creation of Trust, Contributions and Creation of Restricted Units
11. The principal terms and conditions of the Plan as they pertain to the creation of the Trust, contributions to the Trust, and the creation of Restricted Units are as follows:
(a) The Corporation will establish the Trust. The beneficiaries of the Trust will be the Corporation and the Participants.
(b) The Board may, from time to time, delegate any and all powers it has under the Plan to the Committee. [Plan section XXXXXXXXXX ]
(c) Pursuant to directives it receives from the Committee, the Board will decide which Eligible Employees will have the opportunity to participate in the Plan as Participants. [Plan section XXXXXXXXXX ]
(d) The Board may determine, in its sole discretion, the quantum of an Incentive Amount in respect of a Performance Cycle of each Eligible Employee that will, in general, be equal to a percentage, which will vary depending on the level of the employee, times the employee's annual remuneration.
The determination of the quantum of an Incentive Amount will be made during the first Performance Period of the Performance Cycle but not later than XXXXXXXXXX of that first Performance Period and will be effective on the Determination Date. [Plan section XXXXXXXXXX ] The determination of the quantum of an Incentive Amount does not, in and of itself, establish a right of a Participant to receive the Incentive Amount.
(e) Notwithstanding 11(d) above, the Board may decide that the Incentive Amount will be effective on XXXXXXXXXX of the first year following the year in which the quantum of the Incentive Amount was determined. [Plan section XXXXXXXXXX ]
(f) In making a determination of an Incentive Amount, the Board shall consider the timing of crediting RUs to the Participant's Account and the vesting requirements applicable to such RUs to ensure that the crediting of the RUs to the Participant's Account and their vesting requirements are not considered a salary deferral arrangement for purposes of the Act and the XXXXXXXXXX [Plan section XXXXXXXXXX ]
For greater certainty, an Eligible Employee will not be credited with any RUs at the time the Incentive Amount is established but only when the Trustee credits RUs to the Participant's Account.
(g) The Incentive Amount under the Plan represents remuneration, which once vested as herein described, will be paid to Participants in consideration for services rendered to the Corporation.
(h) On or before the Determination Date of a particular Incentive Amount, the Board will also determine the Performance Based Vesting Condition that must be achieved in respect of that Incentive Amount. The Performance Based Vesting Condition will specify a Cumulative Distributable Income Increase for the Fund that must be achieved for the relevant Performance Cycle. The initial required Cumulative Distributable Income Increase of the Fund per Unit has been set as XXXXXXXXXX %.
(i) Participation in the Plan is conditional on the Participant signing and executing a Participation Agreement for a Performance Cycle. [Plan section XXXXXXXXXX ]
(j) Except as provided in 11(k) below, the Corporation or the Participant's Employer will remit an amount equal to the Incentive Amount of a Participant to the Plan Custodian:
(i) no later than the 30th day following the Determination Date of the Incentive Amount where the Incentive Amount is effective on the Determination Date as provided in 11(d) above, and
(ii) after XXXXXXXXXX of the year that includes the Determination Date but no later than XXXXXXXXXX of the year following the Determination Date, where the Incentive Amount is effective on XXXXXXXXXX of that subsequent year as provided in 11(e) above.
[Plan section XXXXXXXXXX ]
(k) If the Plan Custodian holds Excess Units at the time a contribution is made in respect of a Participant, the Trustee may allocate all or a portion of those Excess Units to that Participant. The amount contributed in respect of the Participant, as described in 11(j) above, will be reduced by the amount that would otherwise be required to acquire Units equivalent in number to the number of Excess Units that are so allocated to that Participant. The number of Excess Units to be allocated will be computed using the average market value of a Unit on the date of the contribution. [Plan section XXXXXXXXXX ]
(l) Participants will be eligible to participate in the Plan only to the extent of the Incentive Amount computed by the Corporation for their benefit. Participants will not be entitled to contribute to the Plan.
(m) As soon as practicable after receipt of a contribution, but not later than 5 business days thereafter, the Trustee will use the entire amount transferred pursuant to paragraph 11(j) or 11(k) above, as the case may be, to acquire Units on the open market. The Trustee will purchase Units through the facilities of the exchange on which the Units are listed for trading at the time. Subject to these restrictions, all acquisitions of Units by the Trust will be at the Trustee's sole discretion, and the Trustee will control the time, amount and manner of all of the acquisitions. [Plan section XXXXXXXXXX ]
(n) The Trustee will credit a Participant's Account with a number of RUs equal to the number of Units purchased pursuant to 11(m) above, plus the equivalent number of Excess Units allocated to the Participant as described in 11(k) above. Fractional RUs will be credited. All of the RUs credited to a Participant's Account on the date of purchase of the Units shall be subject to the Vesting Conditions. [Plan section XXXXXXXXX ]
To clarify, 11(j) through (n) above, if a Participant has an Incentive Amount of $1,000, and on the date the Employer will make its contribution, Units have an average market value of $100, then up to10 Excess Units could be allocated to the Participant in accordance with 11(k) above. If, in fact, 3 Excess Units are allocated to the Participant, then 3 corresponding RUs would be credited to the Participant's Account and the Employer's cash contribution as determined under 11(j) above would be reduced to $700. The Trustee would then use the $700 to acquire Units on the open market. If the Trustee acquires these Units at a cost of $150 per Unit, the Trustee would acquire 4.66 Units and credit the Participant's Account with an additional 4.66 RUs for a total of 7.66 RUs. However, if the Trustee acquires the Units at a cost of $70 per Unit, the Trustee would acquire 10 Units and credit the Participant's Account with an additional 10 RUs for a total of 13 RUs. Similarly, if 6 Excess Units are allocated to the Participant, the Employer's cash contribution as determined under 11(j) above would be reduced to $400. The Trustee would then use the $400 to acquire Units on the open market. If these Units are acquired at a cost of $150 per Unit, the Trustee would acquire 2.66 Units and credit the Participant's Account with an additional 2.66 RUs for a total of 8.66 RUs, and, if the Trustee acquires the Units at a cost of $70 per Unit, the Trustee would acquire 5.71 Units at $70 each, and credit the Participant's Account with a total of 11.71 RUs.
(o) Excess Units shall be retained by the Trustee and may be granted under this Plan as described in 11(k) above. However, at the discretion of the Corporation, the Trustee may also sell Excess Units and remit the proceeds therefrom to the Corporation. [Plan section XXXXXXXXXX ] The Trustee will otherwise hold all Units until such time as the Units are distributed to the Participants or are forfeited, as the case may be. [Plan section XXXXXXXXXX ]
(p) In the event of any Unit split, combination or exchange, or any merger, consolidation, recapitalization, amalgamation, plan of arrangement, reorganization, spin-off or other distribution (other than normal cash distribution) of Fund assets to unitholders or any other change affecting the Units, such adjustments as are required to reflect such change shall be made with respect to the number of RUs in the accounts maintained for each Participant. [Plan section XXXXXXXXXX ]
Trust income and distributions (excluding redemptions of RUs)
12. The principal terms and conditions of the Plan as they pertain to the Trust income and distributions (excluding redemptions of RUs) are as follows:
(a) The Trustee will, during a Performance Cycle, remit any distributions received by the Trust in respect of Units acquired pursuant to the Plan, to the Corporation forthwith after receipt thereof. [Plan section XXXXXXXXXX ]
For greater certainty, the distributions to be remitted to the Corporation will include any amounts received as income, capital gains, capital or any other distributions realized by the Trust on Units acquired in respect of non-vested RUs as well as any amounts received as income, capital capital gains or any other distributions realized on Excess Units held by the Trust.
(b) A Participant does not have a right to receive distributions from the Fund with respect to RUs credited to the Participant's Account until Units have been distributed to the Participant and neither participation in the Plan nor any action under the Plan entitles a Participant to receive distributions from the Fund with respect to the RUs credited to such Participant's Account. However, when the Trustee distributes vested Units to a Participant as provided in 13(i) and 13(k) below, the Trustee will remit to the Participant any distributions received from the Fund after the Units had vested, when the vested Units are distributed. [Plan sections XXXXXXXXXX ]
(c) The Corporation may, at its sole and entire discretion, contribute an amount before XXXXXXXXXX of a Performance Period, that is equivalent to the amount received from the Trustee during the preceding and the current Performance Periods as provided in 12(a) above, other than distributions received in respect of Excess Units. On receipt, the Trustee will:
(i) apply the contributions, if any, to purchase additional Units in the manner described in 11(m) above, and
(ii) credit each Participant's Account with an additional number of RUs equal, on a prorated basis, to the distributions made by the Fund on the Units held by the Trust in respect to each Participant's Account. Additional RUs credited to a Participant's Account in accordance with this paragraph shall vest on the same date as the Performance Based RUs and the Time Based RUs to which they relate. [Plan section XXXXXXXXXX ]
Vesting of RUs and their Redemption
13. The principal terms and conditions of the Plan as they pertain to the vesting of RUs and their redemption are as follows:
(a) The Time Based RUs shall vest in accordance with the Time Based Vesting Condition. The Time Based Vesting Condition is applicable to XXXXXXXXXX % of the RUs credited to a Participant's Account in accordance with 11(n) and 12(c) above.
(b) The Time Based Vesting of RUs held in a Participant's Account requires the continuous employment of the Participant for a period of XXXXXXXXXX months starting:
(i) on the Determination Date, where the quantum of the Incentive Amount is effective for the year in which it is determined, and
(ii) XXXXXXXXXX of the first year following the year in which the quantum of the Incentive Amount was determined, where the Board has decided that the Incentive Amount will be effective on XXXXXXXXXX of that subsequent year. [Plan section XXXXXXXXXX and Definitions]
(c) All Time Based RUs, credited to a Participant's Account with respect to a Performance Cycle, in respect of which the Time Based Vesting Condition has not been achieved, shall automatically be forfeited and cancelled.
(d) After the Time Based RUs credited to a Participant's Account with respect to a Performance Cycle have vested as provided in 13(b) above or 13(j) or (n) below, subject to 13(m) below, the Corporation shall, within XXXXXXXXXX days after the vesting, but no later than XXXXXXXXXX of the Performance Period that follows immediately after the end of the Performance Cycle, instruct the Trustee to distribute to the relevant Participant, a number of Units equal to the Time Based RUs credited in such Participant's Account for the relevant Performance Cycle, net of applicable taxes and contributions to government sponsored plans, and rounded down to the next whole Unit. [Plan section XXXXXXXXXX ]
(e) The Performance Based RUs shall vest in accordance with the Performance Based Vesting Condition. The Performance Based Vesting Condition is applicable to the remaining XXXXXXXXXX % of the RUs credited to a Participant's Account in accordance with 11(n) and 12(c) above.
(f) The Performance Based Vesting of RUs held in a Participant's Account requires the achievement, as confirmed by the Board, of the targeted Cumulative Distributable Income Increase for the Fund as established by the Board for the relevant Performance Cycle as described in 11(h) above. Performance Based RUs attributed to a Participant's account will vest as follows:
(i) When the Incentive Amount is effective for the year in which it is determined, the RUs will vest when the Board confirms that the Performance Based Vesting Condition for the Performance Based RUs credited to a Participant's Account with respect to such Performance Cycle has been achieved. This will occur after the end of a Performance Cycle but shall not occur before the date that is XXXXXXXXXX months after the Determination Date and not later than XXXXXXXXXX of the Performance Period immediately after the end of the Performance Cycle. Vesting will require the Participant to be employed by the Corporation at the time the Board provides its confirmation.
(ii) When the Incentive Amount is effective on the XXXXXXXXXX following the Determination Date, the RUs will vest when the Board confirms that the Performance Based Vesting Condition for the Performance Based RUs credited to a Participant's Account with respect to the Performance Cycle has been achieved. This will occur after the end of the Performance Cycle but no later than XXXXXXXXXX of the Performance Period that follows immediately after the end of the Performance Cycle. Vesting will require the employee to be employed by the Corporation at the time the Board provides its confirmation.
(iii) All Performance Based RUs, credited to a Participant's Account with respect to a Performance Cycle, in respect of which the Performance Based Vesting Condition has not been achieved shall automatically be forfeited and be cancelled.
[Plan section XXXXXXXXXX ]
(g) Subject to 13(m) below, when the Performance Based RUs have vested as provided in 13(f) above or 13(j) or (n) below, the Corporation shall, within XXXXXXXXXX days thereafter, instruct the Trustee to distribute to the relevant Participant, a number of Units equal to the Performance Based RUs credited in such Participant's Account for the relevant Performance Cycle, net of applicable taxes and contributions to government sponsored plans, and rounded down to the next whole Unit. [Plan section XXXXXXXXXX ]
(h) Upon a Participant's Termination for Cause or resignation, all RUs credited to the Participant's Account that are not vested or for which the Board has not instructed the Trustee to distribute to such Participant, shall be forfeited and cancelled on the date of the Participant's Termination for Cause or resignation. [Plan section XXXXXXXXXX ]
(i) Upon a Participant's Retirement, Termination without Cause, death or Long-Term Disability at a time when the Participant's Time Based RUs have not vested as provided in 13(a) and (b) above, the Participant or the Participant's legal representatives shall receive, within XXXXXXXXXX days after the Participant's Retirement, Termination without Cause, death or Long-Term Disability, from the Trustee, on account of the Time Based RUs, such number of Units (rounded down to the next whole Unit) that represents the number of Time Based RUs credited to the Participant's Account for a relevant Performance Cycle multiplied by a fraction, not exceeding one, the numerator of which shall be the number of complete Performance Periods on the date of the Participant's Retirement, Termination without Cause, death or Long-Term Disability, as the case may be, and the denominator of which shall be the number of Performance Periods (not exceeding XXXXXXXXXX ) in the relevant Performance Cycle. This calculation shall be made in respect of each Incentive Amount determined for the Participant and the Time Based RUs credited to the Participant's Account with respect to each such Incentive Amount. All Performance Based RUs that are not vested on the date of a Participant's Retirement, Termination without Cause, death or Long-Term Disability shall be forfeited and cancelled on such date.
For the purpose of this section, the date of a Participant's Termination shall be the date of Termination indicated in a letter of Termination sent or remitted to such Participant and a Performance Cycle or a Performance Period shall not include any period of reasonable notice under employment standards legislation. [Plan section XXXXXXXXXX ]
(j) Subject to 13(n) below, on a Change of Control, all RUs shall vest on that date, whether or not such RUs have met the Vesting Conditions. [Plan section XXXXXXXXXX ]
(k) Except as provided in 13(i) above, and 13(m) below, Units (rounded down to the next whole Unit) shall be distributed by the Trustee to the relevant Participant, net of applicable taxes and contributions to government sponsored plans, within XXXXXXXXXX business days after receipt of instructions from the Corporation. [Plan section XXXXXXXXXX ]
(l) Where Units are to be transferred directly to the Participant, the Trustee will arrange for the sale of sufficient Units to pay for taxes and applicable withholdings. Fractional Units will not be distributed to a Participant, and will be paid in cash.
(m) A Participant or, after the death of a Participant, the legal representatives of the Participant, may request the Trustee to sell any or all of the Units that the Participant, or the Participant's legal representatives, are entitled to receive, and within XXXXXXXXXX business days after receiving such a request from a Participant, in a form acceptable to the Trustee, the Trustee shall arrange for the sale of such number of Units (rounded down to the next whole Unit), deduct from the proceeds of such sale all taxes and social contributions that must be withheld and all brokerage fees and other costs related to the sale of the Units by the Trustee for the account of the Participant, and shall remit the net proceeds thereof to the Participant or the Participant's legal representatives, as the case may be.
[Plan section XXXXXXXXXX ]
(n) Upon the occurrence of a transaction by which the Corporation or an Affiliated Entity makes a public announcement advising of its intention to sell to a third party or wind-up or discontinue the business of such Affiliated Entity or of an internal business division of the Company or of such Affiliated Entity, as the case may be (a "Discontinuance Transaction"), Participants of such Affiliated Entity or of such division of the Company, as the case may be, shall, as of the date of such announcement, automatically and without further notice cease to be eligible for any further grants of RUs hereunder. In such event, all unvested RUs credited to such Participants pursuant to the Plan shall continue to vest until the completion of the Discontinuance Transaction, at which time unvested RUs that are subject to a Performance Based Vesting Condition shall be forfeited. The Participant or the Participant's legal representatives shall receive, from the Trustee, in lieu of all Time Based RUs, such number of Units (rounded down to the next whole Unit) that represents the number of Time Based RUs, multiplied by a fraction, not exceeding 1, the numerator of which shall be the number of days between the date of grant of the relevant Time Based RUs, and the date of completion of the Discontinuance Transaction, and the denominator of which shall be the number of Performance Periods (not exceeding XXXXXXXXXX ) in the relevant Performance Cycle. This calculation shall be made on the basis of each Incentive Amount determined for the Participant and Time Based RUs credited to the Participant's Account with respect to such Incentive Amount. All Performance Based RUs that are not vested on the date of a Discontinuance Transaction shall be forfeited and cancelled on such date.
(o) For greater certainty, certain of the vesting requirements contained in the Plan may be summarized as follows:
Event Time Based Performance Based Payment
Vesting Vesting
When the Vesting will occur Vesting will not occur XXX days
Incentive XXXX months after before the date that is XX following
Amount the Determination months after the vesting
is effective in Date Determination Date, and
the year the when the Board, following
Determination the end of the Performance
Date occurs. Cycle but before
XXXXXXXXXX of the next
year, confirms that the
performance targets have
been met.
____________________________________________________________________
When the Vesting will occur Vesting will occur when XXX days
Incentive XXXX months after the Board, following the following
Amount is XXXXXXX of the end of the Performance vesting
effective year following the Cycle and before
XXXXX of Determination XXXXXXXXX of
the year Date the next year confirms
following the that the performance
Determination targets have been met.
Date
____________________________________________________________________
Termination Forfeited and Forfeited and N.A.
for Cause or cancelled cancelled
Resignation
____________________________________________________________________
Retirement, Pro rata based on Forfeited and XXXX days
Death, the number cancelled after
Long term of complete the
disability Performance event
or Periods over the
Termination number of years in
without Cause the Performance Cycle.
____________________________________________________________________
14. For greater certainty, notwithstanding any provision described in this ruling, all amounts that they have vested and are payable under the Plan will be paid within XXXXXXXXXX years following the end of the calendar year in which the RUs are credited to a Participant's Account.
15. For greater certainty, Addendum A to this ruling provides an example of the operation of the Plan.
Plan Administration
16. The principal terms and conditions of the Plan as they pertain to the administration of the Plan are as follows:
(a) The Plan will not, at any time, entitle Participants to own, directly or indirectly securities of the Corporation, or of a corporation or trust with which the Corporation is not dealing at arm's length, except the Units that were acquired as described in this ruling.
(b) A Participant does not have a right to vote with respect to the RUs credited to the Participant's Account or the Units purchased by the Trustee, and neither participation in the Plan nor any action under the Plan shall be construed to give any Participant a right to vote with respect to the RUs credited to a Participant's Account or the Units purchased by the Trustee.
(c) All fees other than brokerage fees described in 13(m) above that are incurred by the Plan will be paid for by the Corporation.
(d) The Committee may, at any time, terminate or modify the Plan. However, no such modification will be permitted if it results in the Plan no longer being an Employee Benefit Plan, as defined in subsection 248(1) of the Act (XXXXXXXXXX ), or it no longer qualifies under the exception provided in paragraph (k) of the definition of salary deferral arrangement in subsection 248(1) of the Act (XXXXXXXXXX ).
Purpose of the Proposed Transactions and the Proposed Plan
17. The purpose of the Plan is to provide Participants with compensation opportunities that will encourage ownership of Units, to enhance the Employer's ability to attract, motivate and retain key personnel, to reward the Participants for significant performance and associated growth in distributable income and to align the interests of the Participants and the unitholders of the Fund.
Additional Information
18. To the best of your, the Group's and any Participants' knowledge, none of the issues involved in this ruling are:
(i) in an earlier return of any member of the Group or a Participant, or any person related to any member of the Group or a Participant;
(ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of any member of the Group or a Participant, or any person related to any member of the Group or a Participant;
(iii) under objection by any member of the Group or a Participant, or any person related to any member of the Group 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 any member of the Group or a Participant.
Rulings
Provided that:
(i) the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, definitions, the proposed Plan, the proposed transactions and the purpose of the proposed Plan and the proposed transactions, and
(ii) the wording of the Plan is and continues to be substantially as described above,
we rule as follows:
A. The Plan will not constitute a salary deferral arrangement, as that term is defined in subsection 248(1) of the Act, by virtue of paragraph (k) of that definition.
B. The Plan will not constitute a retirement compensation arrangement, as that term is defined in subsection 248(1) of the Act.
C. The Plan will constitute an employee benefit plan as defined in subsection 248(1) of the Act and the Trust will constitute a trust governed by that employee benefit plan.
D. Paragraph 6(1)(a) of the Act shall not apply to include any amount in a Participant's income solely by reason of Employer contributions to the Plan or the allocation of Restricted Units to a Participant's Account.
E. Paragraph 6(1)(g) of the Act shall apply to include in the income for a year of a Participant, or the estate of the Participant, as the case may be, the aggregate of the following amounts:
(a) the fair market value of any Units distributed by the Trustee to the Participant or the Participant's legal representative in accordance with 13(k) or 13(i) above, in the year in which the Units are distributed, where the fair market value of the Units will be determined as of the day on which the Units are distributed and before deduction of any amounts as specified in 13(g), 13(i) or 13(k) above, as may be applicable,
(b) the fair market value of any Units sold by the Trustee as specified in 13(l) above, in the year in which the Units are sold, where the fair market value of the Units will be determined as of the day on which the Units are sold before deduction of any amounts as specified in 13(g), 13(i) or 13(k) above, as may be applicable, and
(c) the fair market value of any Units sold by the Trustee as specified in 13(m) above, in the year in which the Units are sold, where the fair market value of the Units will be determined as of the day on which the Units are sold before deduction of any amounts as specified in 13(m) above.
F. An Employer's contributions to the Trustee as described in 11(j) and 12(c) above, will be deductible by the Employer in a year to the extent provided in subsections 32.1(1), (2) and (3) of the Act, and for the purposes of paragraph 32.1(2)(a) of the Act, payments made in a year will include all amounts described in Ruling E above. For the purposes of subparagraph 32.1(1)(a)(iii) of the Act, a return of amounts contributed to the EBP will include the total of all amounts received by the Employer out of or under the Trust as described in Rulings J and K below.
G. On distribution of Units by the Trust as described in Ruling E above:
(a) the Trust will be deemed under subparagraph 107.1(b)(i) of the Act to dispose of the Units for proceeds of disposition equal to their cost amount immediately before the distribution of the Units,
(b) the Participant or the estate of the Participant, as the case may be, will be deemed under subparagraph 107.1(b)(ii) of the Act to have acquired the Units for an amount equal to the greater of:
(i) the fair market value of the Units received, and
(ii) the adjusted cost base to the Participant or the estate of the Participant, as the case may be, of the Participant or the Participant's estate's interest in the Trust, and
(c) the Participant or the estate of the Participant, as the case may be, will be deemed by paragraph 107.1(c) of the Act to have disposed of the Participant's, or the estate of the Participant's, interest in the Trust or part thereof, as the case may be, for proceeds of disposition equal to the adjusted cost base of the interest to the Participant or the estate of the Participant, as the case may be.
H. Provided the provisions of subsection 104(6) are satisfied, the Trust may deduct in computing its income for a year in accordance with paragraph 104(6)(a.1) of the Act, such part of the amount that would, but for subsection 104(6) of the Act, be its income for the year as is paid to the Corporation as described in 12(a) above.
I. Subject to Ruling J and K below, provided the Trust is a resident of Canada throughout a particular year and a valid designation under subsection 104(19) of the Act is made, the amount of any taxable dividends received by the Trust in the year on a share of the capital stock of a taxable Canadian corporation that are paid to the Corporation in the year as described in 12(a) above, will be included in the income of the Corporation pursuant to subsection 104(13)(b) of the Act as a taxable dividend for the purposes of the Act other than Part XIII.
J. In accordance with paragraph 12(1)(m) of the Act, and to the extent provided therein, any amounts that are paid to the Corporation in a year, including those amounts described in 12(a) above that are required to be included in the income of the Corporation pursuant to paragraph 104(13)(b) of the Act, shall be included in the Corporation's income for the year.
K. Subject to Ruling J above, provided the Corporation has contributed an amount to the Trust as an employer, any amounts that are paid to the Corporation in a year, including those amounts described in 12(a) above, that are required to be included in the income of the Corporation pursuant to paragraph 104(13)(b) of the Act, shall be included in the Corporation's income for the year, in accordance with paragraph 12(1)(n.1) of the Act and to the extent provided therein.
L. By virtue of the exception provided in paragraph 75(3)(a) of the Act for property held in a taxation year by a trust governed by an employee benefit plan, subsection 75(2) of the Act will not apply to the Trust.
M. The provisions of the Act pertaining to salary deferral arrangements will not apply solely as a consequence of the retention of Excess Units by the Trust where the Excess Units are not held in respect of a particular Participant's Account.
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 Proposed Transactions and the proposed Plan are implemented by XXXXXXXXXX .
Comments
1. The fair market value of a Unit, at any particular time, is a question of fact and nothing in this ruling should be construed as implying our acceptance of any method for the determination of the fair market value of a Unit for the purposes of the Plan.
2. The treatment of any particular payment as a payment of income, a dividend, a capital gain or a capital distribution, is subject to a number of provisions of the Act and nothing in this ruling should be construed as implying our acceptance of any particular payment as being a payment of income, a dividend, a capital gain or a capital distribution.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
XXXXXXXXXX
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