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 DSUs be paid out in more than one payment?
Position: Yes
Reasons: The wording in Reg. 6801(d) permits multiple payments, provided the amounts are received by the participant no later than the end of the first calendar year commencing after the end of employment.
XXXXXXXXXX 2008-026892
XXXXXXXXXX , 2008
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Company") BN XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX , and your e-mails dated XXXXXXXXXX wherein you requested an advance income tax ruling with respect to an amendment to the arrangement for which an advance income tax ruling was previously issued on behalf of the above-noted taxpayer.
This letter is based solely on the facts and proposed transactions described below. The documentation submitted in respect of your request does not form part of the facts and proposed amendments and any references thereto are provided solely for the convenience of the reader.
Definitions and Abbreviations
1. All terms used herein that are defined in the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, 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 to such terms in our ruling 991705 dated XXXXXXXXXX , 1999 (the "Ruling") unless otherwise stated.
Facts
3. The Company is a corporation amalgamated under the laws of XXXXXXXXXX , a resident of Canada, and a public corporation as defined in subsection 89(1) of the Act. The XXXXXXXXXX Shares of the Company are listed on the XXXXXXXXXX Exchange and the XXXXXXXXXX Exchange.
4. The Company's head office is located at XXXXXXXXXX
5. The Company files its tax returns at the XXXXXXXXXX Taxation Centre and it deals with the XXXXXXXXXX Tax Services Office.
6. The Company's business number is XXXXXXXXXX .
7. Effective XXXXXXXXXX , the Company established a DSU plan (the "Plan") for certain directors of the Company. This Plan was the subject of the Ruling referred to in paragraph 2 above. In particular, paragraph 8(d) of the Ruling stated:
"Termination of Board Service. On a day ("Settlement Date") - to be determined by the Eligible Director or his or her representative in his or her sole discretion, upon at least 10 days written notice to the Company - between the date an Eligible Director to whom DSUs have been granted under the Plan ceases to be an Eligible Director, and the last business day in December of the first calendar year commencing after the Eligible Director ceases to be an Eligible Director, the Company shall pay to the Eligible Director a lump sum payment (or as the Committee may otherwise determine), net of any applicable withholdings, in cash equal to the number of DSUs credited to his or her account as of the Settlement Date multiplied by the Fair Market Value on the Settlement Date;"
Proposed Amendments
8. The Company proposes to amend the Plan as follows:
(i) Paragraph 8(d) of the Ruling is deleted and replaced with the following:
"Termination of Board Service. At any time after the Termination of an Eligible Director for whom a DSU Account is being maintained by the Company but no later than the last business day in December of the first calendar year commencing after that Termination, on one or more business days (each a "Settlement Date") within such period determined by the Eligible Director or his or her legal personal representative in his or her sole discretion upon at least 10 days prior written notice to the Company for each such notice (each a "Payment Notice"), the Company shall pay to the Eligible Director or his or her legal personal representative a lump sum amount (or as the Committee may otherwise determine), net of any applicable statutory source deductions, calculated as herein set out. Each such lump sum amount shall be paid in cash and shall be equal to the number of Deferred Share Units specified in the applicable Payment Notice, to a maximum of the number of Deferred Share Units credited to the Eligible Director's DSU Account as of the applicable Settlement Date, multiplied by the Fair Market Value on the Settlement Date referred to in the Payment Notice. The right of an Eligible Director to make an election pursuant to this paragraph 8 in respect of less than the full number of Deferred Share Units to which such Eligible Director is entitled shall be subject to the following limitations:
(a) The full amount of the payment to which such Eligible Director is entitled must be elected in the event the estimated payment amount calculated pursuant to the Payment Notice is less than $XXXXXXXXXX ;
(b) All Payment Notices which are in respect of less than the full number of Deferred Share Units to which such Eligible Director is entitled shall be in respect of a number of Deferred Share Units which provides for an estimated payment amount of at least $XXXXXXXXXX ; and
(c) The estimated payment amounts referred to in (a) and (b) above shall be based on the closing share price for XXXXXXXXXX Shares of the Company on the business day immediately prior to the date of the Payment Notice."
(ii) substituting the words "Settlement Date(s)" for the words "Settlement Date" in paragraph 8(g) of the Ruling.
Purpose of the Proposed Amendments
9. The purpose of the proposed amendments is to provide Eligible Directors with additional flexibility in realizing the benefits under the Plan after their termination with the Company. The proposed amendments would permit Eligible Directors to elect to receive payment for their DSUs in multiple lump sum amounts provided the payments are made in accordance with paragraph 6801(d) of the Income Tax Regulations.
10. To the best of your knowledge and that of the above-referenced taxpayer, 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 tax centre in connection with a previously filed tax return of 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 expired, or
(v) the subject of a ruling, other than the Ruling referred to above, previously issued to the Company or a related person by this Directorate.
Ruling
Provided the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed amendments to the Plan and purpose of the proposed amendments to the Plan, and provided the proposed amendments to the Plan are made as described above, we rule as follows:
The proposed amendments to the Plan as described in paragraph 8 above will not, in and of themselves, cause the rulings given in the Ruling to cease to be binding on the CRA, in accordance with the practice outlined in Information Circular 70-6R5 dated May 17,2002.
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 Canada Revenue Agency provided that the proposed amendments to the Plan are completed by XXXXXXXXXX .
1. Nothing in this letter should be construed as implying that the Canada Revenue Agency has confirmed, reviewed or made any determination in respect of any tax consequences relating to the facts, or the proposed amendments to the Plan or any transaction or event taking place either prior or subsequent to the implementation of the proposed amendments to the Plan, whether described in this letter or not, other than those specifically described in the ruling given above.
2. The fair market value of a XXXXXXXXXX Share, 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 XXXXXXXXXX Share for the purposes of the proposed transaction.
Yours truly,
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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