18 July 2006 External T.I. 2006-0194301E5 - Phantom stock Plans

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: What are the taxation and withholding obligations in respect of the specific plan?

Position: No specific answer could be provided but general comments were made.

Reasons: The plan in question has existed for some time. We therefore could not provide the rulings requested.

XXXXXXXXXX 							2006-019430
W. C. Harding

July 18, 2006

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
XXXXXXXXXX (the "Plan")
XXXXXXXXXX (the "Agreement")

This is in reply to your letter of June 28, 2006, wherein you requested confirmation of the taxation and income tax withholding requirements in respect of an Agreement entered into under the above noted Plan. We also acknowledge receipt of a copy of the Plan.

We are unable to provide you with the confirmations requested since the Agreement is governed by a Plan, which has been in existence for a number of years. This Directorate can only provide written confirmation of the tax implications inherent in particular transactions where the transactions are proposed and are the subject matter of a request for an advanced income tax ruling submitted in the manner set out in Information Circular IC 70-6R5. Where the particular transactions are completed, any inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we can provided the general comments below, which we hope will be of some assistance to you. However, as stated in paragraph 22 of the Information Circular, these comments are not binding on the Canada Revenue Agency ("CRA") in respect of any particular situation.

We have noted that the Agreement and the Plan provide for the issue or allocation of previously issued shares to an employee or, at the discretion of the employer, a payment of cash. You also indicated in our conversations (XXXXXXXXXX-Harding) that the US parent corporation has always arranged for the issue or sale of shares to the employees through a broker located in the US. Accordingly, it appears to us that the Agreement is an agreement to issue shares to an employee and as such, section 7 of the Income Tax Act would be applicable when the employee acquires the shares in accordance with the Agreement unless the employer elects to pay cash to the employee. This position is explained in paragraph 11 of Interpretation Bulletin IT-113R4 Benefits to Employees - Stock Options.

Withholding requirements on employee security options are discussed on CRA's website at http://www.cra-arc.gc.ca/tax/business/topics/payroll/benefits/financial/security/stockopt05-e.html. However please note that the CRA's administrative position that no withholding taxes are required on non-cash benefits does not apply to taxes withheld on the payment of amounts to non-resident employees. We also note that withholding of taxes is a responsibility of the payor of the option benefit. However, CRA may, permit the withholding to be made by a Canadian employer where the amount is actually paid by a non-resident parent corporation. Please contact your local tax services office should you wish to discuss this matter further

The publications noted above may be found on the CRA's website at http://www.cra-arc.gc.ca.

We trust our comments will be of assistance to you.

Yours truly,

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