2004 Ruling 2004-0088601R3 - RSU plan wherein units can be converted to DSUs

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. Whether bonus plans under which awards are converted into RSUs and PRSUs, and under which such RSUs and PRSUs can be converted into DSUs, are exempt from the definition of "salary deferral arrangement" by virtue of the definition of this term in subsection 248(1) of the Act?

2. Whether the conversion of RSUs and PRSUs into DSUs results in an income inclusion in the hands of a participant?

Position: 1. Yes.

Reasons: 1. Meets the requirements under paragraph (k) since the amounts are to be paid under the plans within the required timeframe. 2. No amount is received by the participant.

XXXXXXXXXX 		2004-008860

XXXXXXXXXX, 2004

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Company")

We are writing in response your letter dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the Company. We also acknowledge receipt of your correspondence and emails dated XXXXXXXXXX, as well as the information provided in our various telephone conversations (XXXXXXXXXX).

To the best of your knowledge, and that of the Company, none of the issues involved in the ruling request is:

i. in an earlier return of the Company or a related person;

ii. being considered by a tax services office or a tax centre in connection with a tax return already filed by the Company or a related person;

iii. under objection by the Company or a related person;

iv. before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; and

v. the subject of a ruling previously issued by our Directorate to the Company or a related person.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definitions unless otherwise indicated.

Definitions

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

(a) "Administrator" means the Chief Executive Officer (the "CEO") of the Company who may be assisted in administering the Bonus Plans or the DSU Plans by the President, the most senior officer of the Company responsible for human resources, or such other officer or officers of the Company as the CEO may from time to time designate;

(b) "Affiliate" means an affiliate of the Company as that term is defined in paragraph 8(b) of the Agency's Interpretation Bulletin IT-337R4, Retiring Allowances;

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

(d) "Applicable Withholding Taxes" means any and all taxes and other source deductions or other amounts which the Company is required by law to withhold from any amounts to be paid under the Bonus Plans or the DSU Plans;

(e) "Award" means a dollar amount awarded under either of the Bonus Plans to a Participant, which dollar amount is converted to RSUs or PRSUs, as the case may be, in accordance with the terms of the particular Bonus Plan;

(f) "Award Date" means the date that a Particular Award is granted to a Participant, as specified in the Participation Agreement for the Particular Award;

(g) "Board" means the Board of Directors of the Company;

(h) "Bonus Plans" means the RSU Plan and the PRSU Plan;

(i) "Chairman" means the Chairman of the Board;

(j) "Change of Control" means

(i) the completion of a transaction involving a merger, amalgamation, consolidation or corporate reorganization of the Company with another entity (XXXXXXXXXX) that:

A. results in all Shares issued and outstanding immediately prior to the completion of such transaction constituting less than fifty percent of all voting rights of the surviving entity following completion of the transaction; or

B. results in, or is expected to result in, a change of fifty percent or more of the Board following such transaction; or

(ii) any other circumstance where an event has occurred, will occur, or is expected to occur that the Board, in its discretion, considers to be a material change in the business or control of the Company;

(k) "Committee" means the XXXXXXXXXX of the Board or such other committee (in the case of the Bonus Plans) or such other person or persons (in the case of the DSU Plans) designated by the Board;

(l) "DSU" means a notional unit that is issued under the DSU Plan or Amended DSU Plan, including a notional unit issued under the Amended DSU Plan on a conversion of Units, which, under no circumstances, is considered a Share or entitles a DSU Participant to exercise voting rights or any other rights associated with a Share;

(m) "DSU Account" means a notional account maintained, or caused to be maintained, by the Company for each DSU Participant, recording at all times the number of DSUs standing to the credit of a particular DSU Participant;

(n) "DSU Gross Redemption Value" means the product that results from multiplying the number of DSUs recorded in a DSUs Participant's DSU Account on the Redemption Date by the Redemption Value of the DSUs;

(o) "DSU Participant" means an individual to whom DSUs have been credited under the DSU Plan or Amended DSU Plan;

(p) "DSU Plan" means the Company's Senior Executive Deferred Share Unit Plan and "DSU Plans" means the DSU Plan and the Amended DSU Plan;

(q) "Eligible Person" means any executive of the Company who is invited by the Committee to participate in the DSU Plans; an Eligible Person also includes any director who is entitled to an award under any of the Company's incentive compensation plans in respect of active employment with the Company and who is invited by the Committee to participate in the DSU Plans;

(r) "Exchange" means XXXXXXXXXX Stock Exchange;

(s) "Fair Market Value" of a Share on a particular day means the average of the high and low prices at which Shares are traded on the Exchange on that day (or, if the Exchange is not open on that day, the most recent day before that day on which the Exchange is open); if the Shares are not listed on the Exchange or are not traded on the Exchange on the relevant day, the Fair Market Value is the value established by the Committee in good faith;

(t) "Final Units" means, in respect of a Particular Award under the PRSU Plan, the aggregate of the Year One Units, Year Two Units, and Year Three Units unless a PRSU Participant's employment has been terminated without cause in Year 2 or Year 3, in which case, "Final Units" shall mean only Year One Units (if the PRSU Participant's service terminates in Year Two) or the aggregate of Year One Units and Year Two Units (if the PRSU Participant's service terminates in Year Three);

(u) "Gross Redemption Value" in respect of a Particular Award means the product that results from multiplying the number of Units recorded in a Participant's Unit Account in respect of the Particular Award on the Maturity Date of the Particular Award, by the Redemption Value of the Units;

(v) "Initial Units" the initial number of notional units allocated to a PRSU Participant under the PRSU Plan in respect of a Particular Award;

(w) "XXXXXXXXXX Charter" means the terms of reference or mandate of the Committee, as it may be amended from time to time;

(x) "Maturity Date" of a Particular Award under the Bonus Plans means the date which is three years after the Award Date of the Particular Award, or, if the Participant retires, dies or becomes disabled before this date, the date of termination of employment, unless the Committee, in its discretion, chooses an earlier date because of other special circumstances;

(y) "PRSU" means a notional unit issued under the PRSU Plan, which, under no circumstances, is considered a Share or entitles a PRSU Participant to exercise voting rights or any other rights associated with a Share, and includes any one or all of Initial Units, Year One Units, Year Two Units, Year Three Units, and Final Units;

(z) "PRSU Participant" means an employee of the Company or an Affiliate who has been chosen by the Committee or the Administrator to participate in the PRSU Plan;

(aa) "PRSU Plan" means the Company's XXXXXXXXXX Performance Based Restricted Share Unit Plan;

(bb) "Participant" means an RSU Participant or a PRSU Participant;

(cc) "Participation Agreement" means a written agreement under either of the Bonus Plans between a Participant and the Company, entered into in connection with a Particular Award;

(dd) "Particular Award" means an Award made to a Participant under either of the Bonus Plans at a particular time;

(ee) "Performance Factor" means the multiple which is determined in the manner set out in the Participation Agreement related to a Particular Award under the PRSU Plan unless the PRSU Plan provides that the Performance Factor will be 100%; the Committee may, in its sole discretion, change the formula to be used in calculating the Performance Factor in Year Two and Year Three of a Particular Award;

(ff) "Performance Target" means the performance objective of the Company to be used in determining the Performance Factor, and will either be set out in the Participation Agreement (for purposes of determining the Year One Units) or will be advised to the PRSU Participants (for purposes of determining Year Two and Year Three Units);

(gg) "Performance Result" means the Company's actual performance, as determined by the Committee, in any fiscal year, as compared against the Performance Target;

(hh) "RSU" means a notional unit issued under the RSU Plan, which, under no circumstances, is considered a Share or entitles an RSU Participant to exercise voting rights or any other rights associated with a Share;

(ii) "RSU Participant" means an employee of the Company or an Affiliate who has been chosen by the Committee or the Administrator to participate in the RSU Plan;

(jj) "RSU Plan" means the Company's XXXXXXXXXX Restricted Share Unit Plan;

(kk) "Redemption Date" means the earlier of: (i) the day after the Termination Date on which a written redemption form is filed by a DSU Participant; and (ii) XXXXXXXXXX of the first calendar year following the calendar year in which the DSU Participant's Termination Date occurs (or if the particular XXXXXXXXXX is not a business day, the first business day thereafter);

(ll) "Redemption Value"

(i) in respect of Units means the XXXXXXXXXX day average of the high and low prices as quoted on the Exchange for one Share (XXXXXXXXXX) on each of the XXXXXXXXXX consecutive days on which such prices are so quoted immediately preceding the Maturity Date of the Particular Award pursuant to which the Units were allocated;

(ii) in respect of DSUs means the Fair Market Value of a Share on the Redemption Date;

(mm) "Regulations" means the Income Tax Regulations;

(nn) "Share" means a common share of the Company;

(oo) "Termination Date" means the earliest date on which both of the following conditions are met by a DSU Participant in the DSU Plan: (1) the DSU Participant has ceased to be employed by the Company or an Affiliate for any reason whatsoever (for this purpose, the last day of active employment is considered the last day of employment regardless of any statutory or common law period of notice of termination of employment); and (2) the DSU Participant is not a member of the Board;

(pp) "Unforseeable Emergency" means a severe financial hardship to a Participant resulting from an illness or accident of the Participant, the Participant's spouse, or a dependent of the Participant, loss of the Participant's property due to casualty or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant;

(qq) "Unit" means an RSU or a PRSU;

(rr) "Unit Account" means a notional account maintained, or caused to be maintained, by the Company for each Participant, recording at all times the number of RSUs or PRSUs, as the case may be, standing to the credit of a particular Participant;

(ss) "Year One" means the period of time commencing on the Award Date of a Particular Award and ending 12 months thereafter;

(tt) "Year Two" means the period of time commencing 12 months from the Award Date of a Particular Award and ending 12 months thereafter;

(uu) "Year Three" means the period of time commencing 24 months from the Award Date of a Particular Award and ending 12 months thereafter;

(vv) "Year One Units" means one-third of the Initial Units multiplied by the Performance Factor determined on the first anniversary of the Award Date or by a Performance Factor which is 100% if the PRSU Plan provides that the Performance Factor to be applied in determining any year's PRSUs shall be 100%;

(ww) "Year Two Units" means one-third of the Initial Units multiplied by the Performance Factor determined on the second anniversary of the Award Date or by a Performance Factor which is 100% if the PRSU Plan provides that the Performance Factor to be applied in determining any year's PRSUs shall be 100%; and (xx) "Year Three Units" means one-third of the Initial Units multiplied by the Performance Factor determined on the third anniversary of the Award Date or by a Performance Factor which is 100% if the PRSU Plan provides that the Performance Factor to be applied in determining any year's PRSUs shall be 100%.

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

Facts

1. The Company is a XXXXXXXXXX It is a taxable Canadian corporation and a public corporation within the meaning of subsection 89(1) of the Act, with shares listed on the Exchange and other exchanges. The Company's fiscal year ends on XXXXXXXXXX.

2. The Company files its income tax returns with the XXXXXXXXXX Tax Centre and is located within the area served by the XXXXXXXXXX Tax Services Office.

3. The DSU Plan was established effective XXXXXXXXXX. The Company does not contribute any amounts to a third party or otherwise set aside any amounts to fund the benefits that will be provided under the DSU Plan. No previous advance income tax ruling has ever been obtained in respect of the DSU Plan.

4. The relevant terms of the DSU Plan are as follows:

(a) Under an agreement in writing between an Eligible Person and the Company, an Eligible Person can elect, with the Committee's approval, to receive all or part of an award under some of the Company's incentive compensation plans in the form of DSUs. The Company may also require that all or part of such an award be taken in the form of DSUs to meet share ownership or mandatory deferral requirements. The number of DSUs credited to a DSU Participant's DSU Account will be equal to the amount of the award to be taken in the form of DSUs divided by the Fair Market Value of a Share on the day on which the award is approved by the Board or Committee.

(b) Under the DSU Plan, a DSU Participant is not entitled to receive any amount prior to his or her Termination Date. Following the Termination Date and no later than XXXXXXXXXX of the calendar year following the calendar year in which the Termination Date occurs, the Company will make a lump-sum cash payment to the DSU Participant equal to the DSU Gross Redemption Value, net of any Applicable Withholding Taxes. Following this, the DSUs credited to the particular DSU Participant's DSU Account will be cancelled.

(c) A DSU Participant's DSU Account will be credited with additional DSUs whenever cash dividends are paid on Shares. The number of additional DSUs credited to a DSU Participant in connection with the payment of dividends on Shares is equal to the actual amount of dividends that would have been paid to the DSU Participant if he or she had held actual Shares rather than DSUs divided by the closing price of a Share on the last business day of the quarter in which the dividends are paid on the Shares.

(d) In the event of any stock dividend, stock split, combination or exchange of Shares, merger, consolidation, spin-off or other distribution (other than normal cash dividends) of the Company's assets to shareholders, or any other change in the capital of the Company affecting the Shares, such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change, will be made with respect to the number of DSUs outstanding under the DSU Plan.

(e) The Board may from time to time amend or suspend the DSU Plan in whole or in part and may at any time terminate the DSU Plan. However, any such amendment, suspension, or termination may not adversely affect a DSU Participant's existing rights under the DSU Plan at the time of such amendment, suspension or termination. If the Board terminates the DSU Plan, no new DSUs will be credited to a DSU Participant's DSU Account, but previously credited DSUs will remain outstanding and will be paid in accordance with the terms and conditions of the DSU Plan existing at the time of termination.

(f) Notwithstanding paragraphs 4(d) and (e) above, no amount will be paid to, or in respect of, a DSU Participant under the DSU Plan or pursuant to any other arrangement, nor will DSUs be granted to a DSU Participant, to compensate the DSU Participant for a downward fluctuation in the price of the Shares, nor will any other form of benefit be conferred upon, or in respect of, a DSU Participant for such purpose.

(g) DSUs are not transferable or assignable other than by will or the laws of descent and distribution.

Proposed Transactions

5. Subject to the receipt of a favourable advance income tax ruling from the Agency, the Company is proposing to establish the Bonus Plans for incentive awards to be awarded to certain employees of the Company for services rendered in the Company's XXXXXXXXXX and subsequent fiscal years and to amend the existing DSU Plan (the "Amended DSU Plan").

6. The relevant terms of the RSU Plan are as follows:

(a) Awards will be granted from time to time to RSU Participants as determined by the Committee or the Administrator. Each Particular Award granted to a RSU Participant in a calendar year is a bonus for services rendered by the RSU Participant in the Company's fiscal year ending in the calendar year.

(b) On the Award Date, RSUs will be allocated to the RSU Participant. The number of RSUs allocated pursuant to a Particular Award will be equal to that number of Shares that could be purchased with the Particular Award using a Share price determined by the Committee, having regard to the price of Shares on or around the time of the Award Date. The Share price so determined by the Committee and/or the formula used to determine the Share price (e.g., XXXXXXXXXX day average for XXXXXXXXXX trading days following the Award Date) will be set out in an RSU Participant's Participation Agreement.

(c) If the Company subdivides or combines its Shares, or is involved in a re-capitalization or reorganization affecting Shares, or if any other event occurs including without limitation, the occurrence of a Change of Control, which in the judgment of the Committee necessitates action by way of adjusting the number of RSUs allocated pursuant to a Particular Award so that the RSU Participant will continue to have a benefit equivalent to that which the RSU Participant would have been entitled had such event not occurred, the Committee may take any such action as in its judgment shall be necessary to preserve the RSU Participant's rights substantially proportionate to the rights existing prior to such event including increasing or decreasing the number of RSUs allocated under a Particular Award.

(d) On the occurrence of certain events, the number of RSUs allocated to a RSU Participant is reduced or a RSU Participant's entitlement to a Particular Award is forfeited. The events giving rise to one or the other of these consequences include a termination of service before the Maturity Date of a Particular Award (other than termination because of retirement, disability or death), engaging in conduct that constitutes cause for disciplinary action, soliciting customers or employees of the Company, disclosing confidential information relating to the Company, or engaging in any activity that competes with the Company or any of its subsidiaries or affiliates.

(e) If the termination of a RSU Participant's service prior to the Maturity Date of a Particular Award occurs without cause and within XXXXXXXXXX months of a Change of Control, the RSU Participant will continue to be entitled to such Particular Award, unless such Particular Award is otherwise forfeited or reduced.

(f) The Administrator has the right, at any time (with the approval of the Committee if required by the XXXXXXXXXX Charter), without delivering a notice to each RSU Participant, to modify or amend the RSU Plan, in whole or in part, and may at any time terminate the RSU Plan, in whole or in part, provided that in the event of such termination, an RSU Participant will continue to be entitled to all Awards previously granted to him or her, subject to the terms of the RSU Plan.

(g) Within XXXXXXXXXX days after the Maturity Date of a Particular Award and no later than the end of the calendar year in which the Maturity Date occurs, the RSU Participant or his or her representative or estate, will be entitled to receive a lump-sum cash payment equal to the Gross Redemption Value in respect of the Particular Award net of Applicable Withholding Taxes. Upon payment in full of the Gross Redemption Value in respect of the Particular Award, the RSUs related to the Particular Award will be cancelled.

(h) Upon the occurrence of an Unforseeable Emergency, as determined by the Administrator, the Maturity Date of all or a portion of a Particular Award will be accelerated.

(i) A RSU Participant who is an active employee of the Company, and who has been invited by the Committee to convert RSUs into DSUs, may irrevocably elect to convert some or all of the RSUs allocated to the RSU Participant in respect of a Particular Award into DSUs under the Amended DSU Plan. The election in respect of a Particular Award must be made during the period starting XXXXXXXXXX days before the Maturity Date of the Particular Award and ending XXXXXXXXXX days before that Maturity Date. RSUs for which an election is made will be cancelled, with the result that the RSU Participant will not be entitled to any payment under the RSU Plan in respect of those RSUs.

(j) Rights and benefits under the RSU Plan may not be assigned, pledged or alienated by a RSU Participant.

(k) The Company will not contribute any amounts to a third party or otherwise set aside any amounts to fund the benefits under the RSU Plan.

7. The relevant terms of the PRSU Plan are as follows:

(a) Awards will be granted from time to time to PRSU Participants as determined by the Committee or the Administrator. Each Particular Award granted to a PRSU Participant in a calendar year is a bonus for services rendered by the PRSU Participant in the Company's fiscal year ending in the calendar year.

(b) On the Award Date, Initial Units will be allocated to the PRSU Participant. The number of Initial Units allocated pursuant to a Particular Award will be equal to that number of Shares that could be purchased with the Particular Award using a Share price determined by the Committee, having regard to the price of Shares on or around the time of the Award Date. The Share price so determined by the Committee and/or the formula used to determine the Share price (e.g., XXXXXXXXXX day average for XXXXXXXXXX trading days following the Award Date) will be set out in a PRSU Participant's Participation Agreement.

(c) Each year, on the first, second and third anniversary of the Award Date, the Administrator will determine the number of Year One Units, Year Two Units, and Year Three Units, respectively, as follows: The Administrator will compare the Performance Target set by the Committee for that year with the Performance Result for that year to determine the Performance Factor. The number of Year One Units, Year Two Units and Year Three Units, as the case may be, to be allocated to the PRSU Participant will be equal to one-third of the Initial Units multiplied by the Performance Factor for that year.

(d) On the Maturity Date of a Particular Award, the Administrator will determine the number of Final Units and allocate them to the PRSU Participant. The Final Units will be used to determine the Redemption Value of a Particular Award, subject to the discretion of the Committee to increase or reduce the amount of the Redemption Value of a Particular Award.

(e) If the Company subdivides or combines its Shares, or is involved in a re-capitalization or reorganization affecting Shares, or if any other event occurs including without limitation, the occurrence of a Change of Control, which in the judgment of the Committee necessitates action by way of adjusting the number of PRSUs allocated pursuant to a Particular Award so that the PRSU Participant will continue to have a benefit equivalent to that which the PRSU Participant would have been entitled had such event not occurred, the Committee may take any such action as in its judgment shall be necessary to preserve the PRSU Participant's rights substantially proportionate to the rights existing prior to such event including increasing or decreasing the number of PRSUs allocated under a Particular Award.

(f) On the occurrence of certain events, the number of PRSUs allocated to a PRSU Participant is reduced or a PRSU Participant's entitlement to a Particular Award is forfeited. The events giving rise to one or the other of these consequences include a termination of service before the Maturity Date of a Particular Award (other than termination because of retirement, disability or death), engaging in conduct that constitutes cause for disciplinary action, soliciting customers or employees of the Company, disclosing confidential information relating to the Company, or engaging in any activity that competes with the Company or any of its subsidiaries or affiliates.

(g) If the termination of a PRSU Participant's service prior to the Maturity Date of a Particular Award occurs without cause and within XXXXXXXXXX months of a Change of Control, the PRSU Participant will continue to be entitled to such Particular Award, unless such Particular Award is otherwise forfeited or reduced.

(h) The Administrator has the right, at any time (with the approval of the Committee if required by the XXXXXXXXXX Charter), without delivering a notice to each PRSU Participant, to modify or amend the PRSU Plan, in whole or in part, and may at any time terminate the PRSU Plan, in whole or in part, provided that in the event of such termination, an PRSU Participant will continue to be entitled to all Awards previously granted to him or her, subject to the terms of the PRSU Plan.

(i) Within XXXXXXXXXX days after the Maturity Date of a Particular Award and no later than the end of the calendar year in which the Maturity Date occurs, the PRSU Participant or his or her representative or estate, will be entitled to receive a lump-sum cash payment equal to the Gross Redemption Value in respect of the Particular Award net of Applicable Withholding Taxes. Upon payment in full of the Gross Redemption Value in respect of the Particular Award, the PRSUs related to the Particular Award will be cancelled.

(j) Upon the occurrence of an Unforseeable Emergency, as determined by the Administrator, the Maturity Date of all or a portion of a Particular Award will be accelerated.

(k) A PRSU Participant who is an active employee of the Company, and who has been invited by the Committee to convert PRSUs into DSUs, may irrevocably elect to convert some or all of the PRSUs allocated to the PRSU Participant in respect of a Particular Award into DSUs under the Amended DSU Plan. The election in respect of a Particular Award must be made during the period starting XXXXXXXXXX days before the Maturity Date of the Particular Award and ending XXXXXXXXXX days before that Maturity Date. PRSUs for which an election is made will be cancelled, with the result that the PRSU Participant will not be entitled to any payment under the PRSU Plan in respect of those PRSUs.

(l) Rights and benefits under the PRSU Plan may not be assigned, pledged or alienated by a PRSU Participant.

(m) The Company will not contribute any amounts to a third party or otherwise set aside any amounts to fund the benefits under the PRSU Plan.

8. The DSU Plan will be amended (the "Amended DSU Plan") to provide for the crediting of DSUs when a valid election has been made under either of the Bonus Plans to convert Units into DSUs. The crediting of DSUs will be effective on the Maturity Date of the Particular Award pursuant to which the Units were allocated. The DSU Plan will also be amended to provide that the number of DSUs to be credited to a DSU Participant after XXXXXXXXXX, whether upon conversion of Units or otherwise, will be determined by dividing the amount of the award to be taken in DSUs or the Gross Redemption Value for Units to be converted, as the case may be, by the average of the high and low prices as quoted on the Exchange for one Share (XXXXXXXXXX) on each of the XXXXXXXXXX consecutive days immediately prior to the Maturity Date on which Shares are traded on the Exchange. The DSUs credited on the conversion of Units will be subject to the same terms and conditions as other DSUs allocated under the Amended DSU Plan.

Purpose of the Proposed Transactions

9. The awarding of Units under the Bonus Plans and the ability to convert Units into DSUs will facilitate compliance with equity exposure targets applicable to certain executives, which targets are intended to promote a greater alignment of interests between the executives and the shareholders of the Company.

Rulings

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided that the features of the Bonus Plans and DSU Plans are as described above, we rule as follows:

A. Neither of the Bonus Plans will constitute a "salary deferral arrangement" as that term is defined in subsection 248(1) of the Act by reason of the exception in paragraph (k) of that definition.

B. Neither of the Bonus Plans will constitute an "employee benefit plan" as that term is defined in subsection 248(1) of the Act.

C. No amount will be included in the income of a Participant pursuant to subsection 5(1), section 6, paragraph 56(1)(a) or subparagraph 115(1)(a)(i) of the Act solely as a result of the allocation of Units under either of the Bonus Plans.

D. Provided that the Amended DSU Plan is a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations, no amount will be included in the income of a DSU Participant pursuant to subsection 5(1), section 6, paragraph 56(1)(a) or subparagraph 115(1)(a)(i) of the Act solely as a result of either the proposed amendments to the DSU Plan, as described in 8 above, or the crediting of DSUs on the conversion of Units.

E. The proposed amendments to the DSU Plan described in 8 above will not, in and of themselves, cause the DSU Plan to fall outside of the definition of a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations.

F. Any amounts payable under either of the Plans to the Participant's estate or to or on behalf of the beneficiary of a Participant, as a result of a Participant's death, will constitute a right or thing held by the deceased Participant at the time of death for the purposes of subsections 70(2) and 70(3) of the Act.

The above advance income tax rulings, which are based on the Act and Regulations in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 Advance Income Tax Rulings, dated May 17, 2002, and are binding on the Agency provided the proposed Plan is implemented before XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
Director
Financial Industries Division
Income Tax Rulings Directorate

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