2006 Ruling 2005-0141651R3 - unregistered pension arrangement

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: Is the arrangement an SDA?

Position: No.

Reasons: The plan provides benefits that are acceptable under a supplemental pension plan.

XXXXXXXXXX 							2005-014165

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
Supplementary Retirement Arrangement Plan for Canadian Employees
XXXXXXXXXX

This is in reply to your letters of XXXXXXXXXX, in respect of your request for an advance income tax ruling on behalf of the above-noted corporation. We also acknowledge the information provided during our telephone conversations and electronic correspondence.

This letter is based solely on the facts and proposed transactions described below. The documentation submitted with your request and in your electronic correspondence 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) "Account" means: the separate account established and maintained for each Participant which represents the Participant's vested and unvested interest in the Plan as of any date, as adjusted from time to time for allocations of Notional Contributions, Earnings, distributions, and for other factors that may affect the value of the account;

(c) "Base Compensation" means: Compensation less bonus payments and taxable benefits;

(d) "Beneficiary" means: the person, persons or entity entitled under 22 below to receive any Plan benefits payable after a Participant's death;

(e) "Board" means: the board of directors of the Company;

(f) "Change of Control" means: for the purposes of the Plan and with respect to the Company, a change of control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14(A) of Regulation 14A promulgated under the Securities Exchange Act of 1934 of the USA, as amended (the "SEA"), or any successor thereto, provided that, without limitation, such a change of control shall be deemed to have occurred if:

a) any "person" (as such term is used in Section 13(d) and 14(d) of the SEA), other than a trustee or other beneficiary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the SEA), directly or indirectly, of Voting Securities of the Company representing fifty one percent (51%) or more of the combined voting power of the Company's then outstanding Voting Securities. As used within this definition, "Voting Securities" shall mean any securities that vote generally in the election of directors;

(b) during any period of XXXXXXXXXX consecutive years, individuals who at the beginning of such period constitute the Board, together with any new directors whose election, or nomination for election by the stockholders, was approved by a vote of at least XXXXXXXXXX of the directors then still in office who were either directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least the majority of the Board; or

(c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving company) at least fifty percent (50%) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or series of transactions) of all or substantially all of the Company's assets to a person or entity which is not a subsidiary of the Company;

(g) "Company" means: XXXXXXXXXX;

(h) "Compensation" means: with respect to a Participant for the period specified, the total compensation of a Participant, including salary, bonus payments, and taxable benefits, as determined by the Plan Administrator in a uniform and consistent manner for all Participants;

(i) "Competition" means: ownership, management, operation, control, employment by, participation in, or connection in any manner with the ownership, management, operation, or control of any business that competes in any manner with any business conducted by the Company during a particular period as specified by the Company. However, Competition shall not mean a Participant's purchasing, solely for investment, of not more than one percent (1%) of the stock or other securities of any corporation the business of which competes with that of the Company and the stock and securities of which are traded on any national or regional securities exchange or are actively traded in the over-the-counter market and registered under Section 12(g) of the SEA;

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

(k) "Determination Date" means: the date on which the Plan Administrator determines the value of a Participant's Account. The Plan Administrator shall determine the value of each Account on the last business day of each month, and at such other times as it may, in its absolute discretion, determine;

(l) "Disability" means: means an injury, disability or condition suffered by the Participant that results in the Participant:

(a) being unable to engage in any substantial gainful activity, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or

(b) receiving income replacement benefits for a period of not less than three months under an accident, disability or health plan covering employees of the Company by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months;

(m) "Earnings" means: amounts credited or debited to each Account on each Determination Date in a Plan Year, in accordance with 19 below;

(n) "Effective Date" means: the day in 2006 that is after the date of this Ruling on which the Plan is established;

(o) "Employee" means: an employee of the Company who was a resident of Canada for the purposes of the Act while in a position of employment with the Company;

(p) "Former Company" means: XXXXXXXXXX;

(q) "Gross Misconduct" means: any of the following actions by a Participant:

(a) misappropriation of any assets of the Company;

(b) behavior reflecting adversely on the reputation of the Company;

(c) unauthorized use or disclosure of any of the trade secrets or confidential information of the Company, including but not limited to the names and addresses of any of the customers of the Company and any knowledge of such needs and requirements;

(d) Competition with the Company in its normal marketing area during a Participant's employment with the Company; or

(e) violations of the standards of conduct as set out in the Company's employee manual including behavior for Termination and/or discipline;

(r) "Normal Retirement Date" means: the first day of the month that coincides with or immediately follows the Participant's XXXXXXXXXX birthday;

(s) "Notional Contributions" means: the notional contributions, if any, allocated to a Participant's Account, pursuant to 14 below;

(t) "Parent" means: XXXXXXXXXX;

(u) "Participant" means: an Employee who participates in the Plan including an Employee who ceases to participate in the Plan but continues to be entitled to amounts under the terms of the Plan as a result of the Employee's previous participation in the Plan;

(v) "Plan" means: the Supplementary Retirement Arrangement Plan for Canadian Employees dated XXXXXXXXXX a copy of which was provided;

(w) "Plan Administrator" means: the Company, acting through its president;

(x) "Plan Year" means: the calendar year;

(y) "Province of Employment" means: the province of Canada in which the Employee is employed and provides services to the Company;

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

(aa) "Retirement" means: the leaving of employment with the Company or any related person, whichever occurs last, other than through a Termination;

(bb) "Ruling" means: this advance income tax ruling;

(cc) "Termination" means: the leaving of employment with the Company or a related person, whichever occurs last, prior to the Participant's Normal Retirement Date; and

(dd) "Vested" means: the portion of a Participant's Account that cannot be forfeited on Termination of employment, except as provided in 17 below (relating to Gross Misconduct), subject to the rights of the Company's other creditors.

In addition, in this letter, the terms "employee" and "employment" have the meaning assigned by subsection 248(1) of the Act, and the term "related person" has the meaning assigned by subsection 251(2) of the Act.

Facts

1. The Former Company was incorporated in the State of XXXXXXXXXX in the United States.

2. The Former Company was established, as a subsidiary of the Parent, solely to conduct the Canadian operations of the Parent's U.S.-based XXXXXXXXXX business.

3. The business assets of the Former Company were transferred to the Company on XXXXXXXXXX. The Former Company has been inactive since the transfer and will likely remain so for the foreseeable future.

4. The Employees of the Company that are resident in Canada currently may participate in a group Registered Retirement Savings Plan ("RRSP"), under which the Company will make contributions to the Employee's RRSP, to a limit of XXXXXXXXXX% of the Employee's contributions, provided that the Employee's statutory contribution limits are not exceeded. For these purposes, Employee contributions to the RRSP are limited to XXXXXXXXXX% of the Employee's total Compensation. The Employees do not participate in any other Company sponsored deferred income plans.

5. Management of the Company wishes to establish the Plan to supplement the group RRSP for Participants, and to provide, to the Participants, benefits similar to those provided to Employees of the Company, or of related companies that are residents of the U.S.

Proposed Plan

6. The Plan shall be established on the Effective Date.

7. The purpose of the Plan is to provide supplemental funds for retirement or upon the death of a Participant.

8. Eligibility to participate in the Plan shall be limited to those Employees who are management or highly compensated Employees, and who have been selected by the Plan Administrator, in its sole discretion, to be Participants.

9. Employees who become newly eligible to participate in the Plan may begin their participation in the Plan as of a date determined under rules to be established by the Plan Administrator. Notional Contributions will only be made with respect to Compensation determined with respect to services performed subsequent to the date a Participant begins to participate.

10. The Plan Administrator may deem an Employee to no longer be eligible to participate in the Plan, at any time and for any reason, provided the reason is not discriminatory as defined in accordance with the laws of the Province of Employment of the Employee. In particular, and without limiting the generality of the foregoing, the Plan Administrator may deem ineligible an Employee who has been given notice of Termination of employment by the Company, or who has given the Company notice of Termination of employment. Employees who have had their employment terminated for any reason, with or without just cause, are automatically deemed ineligible for further participation in the Plan from the time their employment has been terminated, notwithstanding that such Termination may be without just cause.

11. Participants and their Beneficiaries, heirs, successors, and assignees shall have no secured legal or equitable rights, interest or claims in any property or assets of the Company, nor shall they be beneficiaries of, or have any rights, claims or interests in any property or asset which may be acquired by the Company. The assets of the Company shall not be held under any trust for the benefit of Participants, their Beneficiaries, heirs, successors or assignees, or held in any way as collateral security for the fulfilling of the obligations of the Company under the Plan. Any and all of the Company's assets and policies shall be, and remain, the general, unpledged, unrestricted assets of the Company. The Company's obligation under the Plan shall be that of an unfunded and unsecured promise to pay money in the future.

12. The implementation of and participation in the Plan by the Company and the Participants, as well as the Company's Notional Contributions under the Plan, will not be in lieu of any amounts to which Participants would otherwise be entitled by virtue of their employment.

13. If a Participant is no longer eligible to participate in the Plan, no further Notional Contributions shall be made in respect of any period from the date of cessation of eligibility until the date that the Participant is re-designated by the Plan Administrator as an eligible Employee. All Account balances will remain in the Plan until they are distributed under the terms of the Plan as described in 22 or 23 below.

14. The Company shall allocate to a Participant's Account on an annual basis, a Notional Contribution based on a percentage of the Participant's annual Base Compensation. The Notional Contribution percentage shall be reviewed annually by the Board, and may be changed at the Company's sole discretion for all future Notional Contributions. In any event, the Notional Contribution for a Participant for any year shall not exceed the amount determined by the formula:

XXXXXXXXXX% x (A - B)

where

A = the Participant's Compensation for the year, and

B = the amount of the "RRSP dollar limit" for the year as defined in subsection 146(1) of the Act, divided by XXXXXXXXXX%.

The Company anticipates the actual contribution rate will be XXXXXXXXXX% to XXXXXXXXXX% for XXXXXXXXXX and that the rate will likely remain the same in the future.

15. Subject to 17 below, and provided a Participant remains eligible to participate in the Plan, each Notional Contribution will become vested separately on a Plan Year basis as follows:

(a) XXXXXXXXXX percent (XXXXXXXXXX%) on the first day of the second Plan Year following the initial Plan Year with respect to which the Notional Contribution was made; and

(b) an additional XXXXXXXXXX percent (XXXXXXXXXX%) on the first day of each succeeding Plan Year, until one hundred percent (100%) is vested.

16. Notwithstanding 15 above, and subject to 17 below, each Participant shall be one hundred percent vested in the amounts credited to the Participant's Account, including any Earnings credited to the Account as provided under 18 below, upon the earliest of:

(a) the Participant's Normal Retirement Date;

(b) the date of the Participant's Disability;

(c) the date of the Participant's death; and

(d) the date of a Change of Control of the Company,

if on that date the Participant is employed by the Company.

17. Notwithstanding any other provision of the Plan, if the Plan Administrator, in its sole discretion, determines that a Participant has engaged in Gross Misconduct, the Participant will forfeit all further benefits provided under the Plan, including all amounts credited to the Participant's Account that have not actually been paid to the Participant notwithstanding that they may have already vested.

18. For record-keeping purposes, each Participant's Account as of each Determination Date shall consist of the balance of the Account as of the immediately preceding Determination Date, adjusted for:

(a) Notional Contributions, if any, made by the Company since the preceding Determination Date;

(b) distributions if any that have been made to the Participant since the preceding Determination Date; and

(c) Earnings (or losses) as determined under 19 below, if any, credited to the Account since the last Determination Date.

19. Solely as a device to measure amounts payable to Participants or Beneficiaries, the Plan Administrator shall establish uniform and non-discriminatory rules consistent with this provision for the treatment of amounts to be credited to a Participant's Account as Earnings (or losses), based on the return of a set of investment funds designated by the Plan Administrator. No investment of such amounts is required. The Plan Administrator shall retain the discretion to invest all amounts credited to a Participant's Account as it deems appropriate. The Plan Administrator may, in its sole discretion, permit Participants to designate deemed investment of amounts credited to a Participant's Account among investment funds designated by the Plan Administrator and to make transfers among such funds. Such Participant designation may be revised at any time, and will be effective on the first day of the calendar month following the month in which the Plan Administrator receives notification in writing of the revised designation. In no event shall a Participant's designated deemed investment in a fund be considered or construed in any manner, as an actual investment in any such fund, and in the event that the Plan Administrator, in its sole discretion, decides to invest funds in any or all of the funds, no Participant shall have any rights in or to such investments themselves.

20. Solely as a device to measure amounts payable to Participants, former Participants, or Beneficiaries hereunder, the Plan Administrator shall establish uniform and non-discriminatory rules consistent with this provision to determine accrued income, gains and losses from the investments of the Accounts deemed to be made pursuant to 19 above. Any accrued Earnings (and losses) shall be allocated and credited to a Participant's Account on a monthly basis.

21. Earnings (or losses) credited to a Participant's Account shall be vested to the same extent as the Account to which they are credited, determined on a contribution year basis.

22. Subject to 17 above, on Termination of a Participant's employment for any reason including death and disability, prior to the Normal Retirement Date, the Company shall pay to the Participant (or the Participant's Beneficiary, in the case of death) benefits equal to the vested balance in the Participant's Account on the Determination Date immediately preceding the Participant's Termination date. The Plan Administrator shall pay the vested Account balance in a lump sum within XXXXXXXXXX days following the Participant's Termination date. The right to further participate in the Plan ceases immediately upon Termination.

23. On a Participant's Retirement on or after the Participant's Normal Retirement Date, the Participant's Account shall be fully vested, subject to 17 above. The Company shall pay to the Participant benefits equal to the balance in the Participant's Account on the Determination Date immediately preceding the Retirement date and the Administrator shall pay the Account balance in a lump sum within XXXXXXXXXX days following the Participant's date of Retirement.

24. The Plan Administrator shall administer the Plan.

25. Subject to 27 below, the Plan Administrator shall have the authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration of the Plan and decide or resolve any and all questions, including interpretations of the Plan, as may arise in such administration.

26. Subject to 27 below the Company may, at any time, by action of the Board, amend the Plan in whole or in part by written instrument, provided that no amendment shall reduce the amount credited to any Account maintained under the Plan as of the date of the amendment, or result in an acceleration of any benefit payment to the Participants. Any change in the manner that Earnings are credited to Accounts shall not become effective before the first day of the Plan Year that follows the adoption of the amendment.

27. No amendment shall operate so as to cause the Plan or any particular terms of the Plan to be a "salary deferral arrangement" as that term is defined in the Act.

28. The Company may, at any time, by action of the Board, cease to make Notional Contributions to the Plan.

29. If, in the opinion of the Plan Administrator, there is a substantial likelihood of an imminent Change of Control in the Company or its Parent, the Plan Administrator shall determine what, if any, actions regarding the Plan should be taken. In that event, the Plan Administrator may elect to terminate the Plan or to take any other actions that it deems advisable in order to protect the interests of Participants in the Plan. Furthermore, upon an actual Change of Control, the Plan may not be amended or terminated for XXXXXXXXXX years after the Change of Control, without the consent of the Participants.

Purpose of the Proposed Plan

30. The principal objectives of the Proposed Plan are:

(a) to provide to key highly paid Employees additional retirement income beyond that earned through permitted contributions to RRSPs;

(b) to mimic, to the extent possible, an executive deferred compensation plan available to U.S. employees of the Parent and its U.S subsidiaries;

(c) to provide Employees with an incentive to remain with the Company; and

(d) to allow employees a range of investments in the Plan.

Additional Information

31. To the best of your knowledge, none of the issues involved in this Ruling are:

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

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

(c) under objection by the Company, a Participant or any person related to the Company or a Participant;

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

(e) the subject of a ruling previously issued by the Directorate to the Company, a Participant or any person related to the Company 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 and the purpose of the proposed Plan, and

(ii) the wording of the provisions of the Plan are and continue 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.

B. The Plan will not constitute a retirement compensation arrangement as that term is defined in subsection 248(1) of the Act.

C. No amount will be included in the income of a Participant under subsection 5(1) or paragraph 6(1)(a) of the Act as a result of, in and by itself, the Participant's participation in the Plan.

D. Payments made under the terms of the Plan by the Company, to a Participant or to a Beneficiary, will be included in the income of the recipient in the year the amount is received as a superannuation or pension benefit pursuant to subparagraph 56(1)(a)(i) of the Act.

E. Subject to subsection 18(1), section 67 and section 78 of the Act, subsection 9(1) of the Act will apply to allow the Company to deduct amounts that are paid under the terms of the Plan by the Company, as described in D above, in the taxation year in which the Company is required to pay such amounts.

F. Subsection 12(4) will not apply to a Participant in the Plan to require any amount to be included in computing the Participant's income for a year as interest in respect of any entitlements the Participant may have under the Plan.

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 Plan is implemented by XXXXXXXXXX.

Nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or has made any determination in respect of any other tax consequences relating to the facts, proposed Plan or any transaction or event taking place either prior to the implementation of the proposed Plan or subsequent to the implementation of the proposed Plan, whether described in this letter or not, other than those specifically described in the rulings given above.

Yours truly,

XXXXXXXXXX
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch