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: Can a signing bonus be deferred into a plan governed by Regulation 6801(d)?
Position: Yes
Reasons: The signing bonus being paid is subject to a minimum one-year vesting period. If the employee leaves prior to the vesting date, he or she forfeits the bonus. Therefore, the signing bonus is conditional on the performance of employment services.
XXXXXXXXXX 2007-025937
XXXXXXXXXX , 2008
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX on behalf of the above-noted taxpayer, requesting an advance income tax ruling. We also acknowledge receipt of your letter dated XXXXXXXXXX , and your email of XXXXXXXXXX .
We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in the ruling request is:
(i) in an earlier return of the taxpayer or a related person,
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person,
(iii) under objection by the taxpayer or a related person,
(iv) before the courts, or
(v) the subject of a ruling previously issued by the Directorate to the taxpayers or a related person.
Definitions and Abbreviations
1. All terms used herein that are defined in the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date hereof (the "Act") have the meaning given in such definitions unless otherwise indicated.
2. All capitalized terms used herein have the meanings assigned herein.
Facts
3. XXXXXXXXXX is a taxable Canadian corporation. The expression "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act.
4. Common shares of XXXXXXXXXX are listed on the XXXXXXXXXX
5. XXXXXXXXXX files its tax returns at the XXXXXXXXXX Taxation Centre and it deals with the XXXXXXXXXX Tax Services Office. The head office of the Corporation is XXXXXXXXXX .
6. The Management Deferred Share Unit plan (the "Plan") has been in place since XXXXXXXXXX and has never been ruled on by the Directorate; however, XXXXXXXXXX is satisfied that the Plan meets the conditions of paragraph 6801(d) of the Regulations to the Act.
7. XXXXXXXXXX has established a comprehensive compensation and benefit program for eligible executive employees ("Participant") that include an annual incentive plan ("AIP"). The AIP is part of the overall compensation and benefit program for Participants and is based on corporate, business unit and individual performance and provides a cash bonus based on meeting the relevant performance criteria. The amount of the AIP bonus payable to each Participant is determined at the end of the Fiscal Year. Immediately following the Fiscal Year, each Participant is notified of the amount of his or her AIP amount.
8. Under the Plan, Participants can elect to receive all or part of their AIP bonus in the form of Deferred Share Units ("DSU"). A DSU is a notional book keeping entry, equivalent in value to a XXXXXXXXXX common share, credited to a Participant in accordance with the terms of the Plan. For greater certainty, one DSU corresponds to one XXXXXXXXXX common share.
9. Additional DSUs are awarded to reflect dividends paid on an equivalent number of XXXXXXXXXX common shares to the DSUs credited to the Participant's account at the time of the payment of the dividend. The number of additional DSUs is determined by dividing the dollar value of the notional dividends by the closing price of an XXXXXXXXXX common share on the XXXXXXXXXX on the dividend payment date.
10. For Participants who are Canadian residents, the redemption value of the DSUs will be based on the closing price of an XXXXXXXXXX common share on the XXXXXXXXXX on the date the notice of redemption is received, or if no such notice is received, on the first anniversary of the Participant's Retirement, whichever is later. The redemption value of the DSUs will be paid in cash less applicable statutory deductions. For greater certainty, in no event shall a Participant receive payment after the end of the calendar year following the calendar year in which the Retirement occurred.
11. The Plan may be amended or terminated by the Human Resources Committee of the Board (the "Committee") at any time. However, no such amendment or termination can adversely affect DSUs allocated to a Participant's Account prior to the date of such amendment or termination. Subject to any required Board approval, the Committee may also make such adjustments to DSUs that are issued or may be issued as is reasonable and appropriate in the circumstances to preserve the intended benefits of the Plan with respect to any subdivision or consolidation of XXXXXXXXXX common shares, reclassification, conversion, reorganization, recapitalization, change of control or other event that the Committee determines requires actions.
12. No amount is to be paid to, or in respect of, a Participant under the Plan or pursuant to any other arrangement and no additional DSUs can be granted to such Participant as compensation for a downward fluctuation in the value of a XXXXXXXXXX common share, nor will any other form of benefit be conferred upon or in respect of a Participant for such purpose.
Proposed Amendment
13. XXXXXXXXXX is proposing to amend the Plan to permit signing bonuses to be awarded in the form of DSUs. Currently, newly hired executives may be offered a signing bonus. The signing bonus is paid on the first anniversary of the date of hire. An executive, who leaves before the first anniversary, forfeits the signing bonus. Under the terms of the proposed amendment, XXXXXXXXXX would be able to require that some or all of the portion of the signing bonus to be paid in the form of DSUs. DSUs received in lieu of a signing bonus, will at a minimum vest one year from the date of hire or be subject to such additional vesting criteria as may be determined by the Committee. The number of DSUs awarded to a Participant will be determined by dividing the dollar value of the signing bonus by the closing price of an XXXXXXXXXX common share on the XXXXXXXXXX on the date the signing bonus is awarded.
Purpose of the Proposed Amendment
14. The purpose of the proposed amendment is to enhance XXXXXXXXXX ability to attract and retain talented individuals who contribute to the long term growth of XXXXXXXXXX and to promote greater alignment of interests between such individuals and the shareholders of XXXXXXXXXX .
Ruling
Provided that the Plan as established in 2004 satisfies the conditions of paragraph 6801(d) of the Regulations and the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed amendment and purpose of the proposed amendment, we rule as follows:
The proposed amendment to the Plan as described in paragraph 13 above will not, in and of itself, result in the Plan ceasing to meet the conditions of paragraph 6801(d) of the Regulations.
The above income tax ruling is based solely on the facts and proposed amendment described above and does not depend on any other information made available to the Canada Revenue Agency ("CRA"), whether such information was provided by way of additional documentation submitted with the ruling or otherwise. Any reference in this letter to such other information is made solely for the convenience of the reader.
Further, nothing in this letter should be construed as implying that the CRA has agreed to or reviewed any of the tax consequences relating to the facts and proposed amendment described above other than those specifically described in the ruling.
The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and is binding on the CRA provided that the proposed amendment to the Plan is implemented by XXXXXXXXXX
Yours truly,
for Director
Financial Sector and Exempt Entities Division
Income Tax rulings Directorate
Legislative Policy and regulatory Affairs Branch
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