Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: Whether executive remuneration, as defined in paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1), is the total amount of compensation that is reported in the eligible entity's Statement of Executive Compensation for Named Executive Officers without adjustment.
Position: Yes.
Reasons: Wording of the Act.
January 17, 2025
Ms. Linda Boulanger Headquarters
XXXXXXXXXX Income Tax Rulings Directorate
International Sector and
Large Business Directorate J-F. Benoit
Compliance Programs Branch
2024-102979
Subject: Executive remuneration for the purposes of the Canada Emergency Wage Subsidy
This note is in response to your memo dated August 28, 2024, in which you requested our comments regarding a draft assessment for which the principal issue is the interpretation of the term “executive remuneration” as defined in subsection 125.7(1) of the Income Tax Act (the “Act”).
Unless otherwise indicated, all legislative references are to the provisions of the Act.
Background to the Request
Your request relates to a draft assessment issued to XXXXXXXXXX (the “Taxpayer”) on XXXXXXXXXX in which the XXXXXXXXXX Tax Services Office (“TSO”) determined that the Taxpayer must repay an amount received from as Canada Emergency Wage Subsidy (“CEWS”).
Subsections 125.7(14) and (14.1) require certain eligible entities to repay all or part of the CEWS they received pursuant to subsection 125.7(2) in respect of a qualifying period after the sixteenth qualifying period, if certain conditions are satisfied.
The amount of the repayment is determined in particular on the basis of the “executive compensation repayment amount”, as defined in subsection 125.7(1). Paragraph (a) of that definition provides that the executive compensation repayment amount for an eligible entity means nil, unless one of the following two facts is established:
(i) shares of the capital stock of the eligible entity are listed or traded on a stock exchange or other public market, or
(ii) the eligible entity is controlled by a corporation whose shares of its capital stock are listed or traded on a stock exchange or other public market.
If either condition is met, paragraph (b) of the same definition provides for the calculation of the amount of the repayment of executive compensation. Essentially, a given entity may have to repay some or all of the CEWS it has received. For the seventeenth qualifying period to the twenty-third qualifying period, the amount of the repayment of executive compensation is generally the lesser of clause (i)(A) of element B and clause (i)(B) of element B corresponding respectively to:
• the total of all amounts of CEWS received for those qualifying periods;
• the amount determined by the formula C - D where:
• C represents the executive remuneration for the 2021 calendar year (calculated on a pro rata basis, if applicable) and;
• D represents the executive remuneration for the 2019 calendar year (calculated on a pro rata basis, if applicable).
For the twenty-fourth qualifying period and any subsequent qualifying period, the amount of the repayment of the senior management remuneration in respect of those qualifying periods is generally the lesser of clause (ii)(A) of element B and clause (ii)(B) of element B corresponding respectively to:
• the total of all the CEWS amounts received for those qualifying periods;
• the amount determined by the formula E + F - G where:
- E represents any excess of the amount determined under clause (i)(B) of element B over the amount determined under clause (i)(A) of element B;
- F is the executive compensation for the 2022 calendar year (pro-rated if applicable) and;
- G is the executive compensation for the 2019 calendar year (pro-rated if applicable).
The term “executive remuneration” is defined in subsection 125.7(1). Paragraph (a) of this definition provides that, where a taxpayer is an eligible entity required to disclose information to its shareholders under Canadian securities law, its executive remuneration is the total amount reported in its Statement of Executive Compensation (“Statement”) for Named Executive Officers pursuant to National Instrument 51-102 Continuous Disclosure Obligations (“NI 51-102”) (footnote 1), as amended from time to time, of the Canadian Securities Administrators in respect of Named Executive Officers of the eligible entity.
Given that the Taxpayer is an eligible entity referred to in paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1), the TSO has established the amount received from the CEWS that the Taxpayer must repay using the total amounts it declared in its Statements pursuant to that paragraph.
The taxpayer's representatives, however, disagree with the draft assessment, for which they submitted written representations on XXXXXXXXXX.
Position of the Taxpayer's Representatives
The taxpayer's representatives are of the view that the draft assessment is based on a strict interpretation of paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1), which does not provide an adequate basis for comparing executive remuneration.
In their view, that result does not respect the intention of the legislator or the purpose of the Act. They argue that the amount of the executive compensation repayment amount should instead be established by adjusting the total amounts reported in the Statement pursuant to paragraph (a) of the definition of “executive remuneration”.
Here are their arguments in support of that position.
Difference between the French and English versions of the wording of the definition of “executive remuneration” in paragraph 125.7(1)
The Taxpayer's representatives argue that there is a difference between the French and English versions of paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1), which read as follows:
“ rémunération de la haute direction Relativement à une entité déterminée, correspond:
a) à la somme totale qui est déclarée dans la Déclaration de la rémunération de la haute direction de l’entité pour les membres de la haute direction visés au Règlement 51-102 sur les obligations d’information continue, avec ses modifications successives, des Autorités canadiennes en valeurs mobilières à l’égard des membres de la haute direction visés de l’entité;” (emphasis added)
“executive remuneration, of an eligible entity, means
(a) the total amount of compensation that is reported in the eligible entity's Statement of Executive Compensation for Named Executive Officers pursuant to National Instrument 51-102 Continuous Disclosure Obligations, as amended from time to time, of the Canadian Securities Administrators in respect of Named Executive Officers of the eligible entity;” (Our emphasis)
According to the representatives of the Taxpayer, the French version refers to the total amount that is declared in relation to the “membres de la haute direction” who are “membres de la haute direction visés”. These are two expressions defined in National Instrument 51-102 that do not include the same members of senior management. Consequently, the draft assessment has established the executive remuneration using the total amount reported in the Statements in respect of the “Named Executive Officers”, whereas, according to them, the executive remuneration should instead be established using the total amount reported in the Statements in respect of the “executive officers” who are “Named Executive Officers”.
They claim that the French version of the wording of paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1) is the one that best reflects the intention of the legislator since the English version, unlike the French version, is ambiguous. In their opinion, the ambiguity of the English version stems from the repetition, for no apparent reason, of the reference to the total amount reported in respect of the “Named Executive Officers”, i.e. in respect of the members of senior management referred to in French. The fact of specifying at the end of paragraph (a) that the amount reported must be “in respect of Named Executive Officers” when it is already specified at the beginning of the paragraph is, in their opinion, unnecessary and leads to an inaccuracy that is not found in the French version.
They claim that the differences between the French and English versions of the wording of paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1) are not irreconcilable and that a common meaning can be derived from them in light of contextual and purposive elements. In their opinion, the common meaning favours the clear and unambiguous version, i.e., the French version.
The total amount reported in the Statement is limited to the remuneration of a maximum of five individuals.
Paragraph (b) of the definition of “executive remuneration” in subsection 125.7(1) applies when an entity is not subject to paragraph (a) of that same definition but is required to make a disclosure similar to the Statement. Paragraph (b) specifies that the executive remuneration in that case corresponds to the amount of total compensation reported in that disclosure, but that it is limited to the remuneration of the five highest-paid persons if the compensation of more than five individuals is required to be reported under that disclosure.
Although those two paragraphs do not apply to the same entities, the taxpayer's representatives claim that paragraph (b) demonstrates the legislator's intention to compare the executive remuneration for two calendar years on the basis of the remuneration of the five most highly compensated individuals for the periods in question, both in paragraph (b) and in paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1).
According to the representatives of the taxpayer, the Explanatory Notes of the Department of Finance relating to the definition of “executive remuneration” (footnote 2), published in May 2021, demonstrate this legislative intent by indicating, for corporations that file a return, that executive remuneration is determined using the total amount of compensation reported for the five Named Executive Officers:
“executive remuneration"
This new definition is relevant to new paragraph 125.7(14) and is used in subparagraph (ii) of the description of B in the definition of “executive compensation repayment amount”. It provides a measure of executive compensation based upon the amount determined for certain securities law purposes.
If a corporation files a Statement of Executive Compensation for Named Executive Officers pursuant to National Instrument 51-102 Continuous Disclosure, the total amount of compensation reported for the five Named Executive Officers (within the meaning of those rules) is used. This is generally the total compensation reported by the entity for its Chief Executive Officer, Chief Financial Officer and its three other most highly compensated executives. […].”
“Executive remuneration” should not include the compensation of a person who has held multiple positions within the same entity
The representatives of the Taxpayer indicate that under National Instrument 51-102, if a Named Executive Officer acted in that capacity with the entity for part of the financial year covered by the information provided in the summary compensation table, the entity must provide details of all compensation received during that financial year. For greater certainty, compensation includes the earnings realized by the Named Executive Officer in the exercise of other functions with the entity during the financial year.
The representatives of the taxpayer indicate that establishing the executive remuneration using the total sum declared in the Statement in relation to the “Named Executive Officers” results in the remuneration of a person who has held several positions within the entity being combined. Consequently, this does not represent the actual executive remuneration.
The Taxpayer's representatives claim that that result is contrary to the legislator's intention since certain adjustments to the remuneration are already provided for in section 125.7. Indeed, the definition of “executive compensation repayment amount” provided for in subsection 125.7(1) expressly requires that adjustments are to be made to the amount of executive remuneration so that it is prorated based on the number of days of the eligible entity's fiscal periods in the calendar year, if those fiscal periods are not the calendar year.
Consequently, the Taxpayer's representatives are of the view that similar adjustments must also be made to executive remuneration for the purposes of paragraph (a) of that definition in subsection 125.7(1) so that executive remuneration is determined on a calendar year basis based solely on paid days on which the persons in question acted as an executive.
Your Position
You are of the view that the draft assessment issued to the Taxpayer is well founded since, under paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1), executive remuneration includes the total amount of compensation that is reported in the Statement for Named Executive Officers without adjustment.
You have not responded to the representations made by the representatives of the taxpayer regarding the difference between the French and English versions of the wording of paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1). However, here are your arguments in support of your position respecting the other representations made by the taxpayer's representatives.
The total amount reported on the return is limited to the remuneration of a maximum of five individuals
First, you are of the view that paragraphs (b) and (c) of the definition of “executive remuneration” in subsection 125.7(1) do not apply where paragraph (a) of that definition applies. Since the application of paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1) is independent of paragraphs (b) and (c) of that definition, you are of the view that paragraphs (b) and (c) are not relevant to the interpretation of paragraph (a).
Secondly, you are of the view that the legislator did not set a limit on the number of persons to be considered in the application of paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1). Legislators have expressly provided for such a limit in paragraph (b) of the definition of “executive remuneration” in subsection 125.7(1), but have not done so in paragraph (a) of that definition.
Finally, you are of the view that executive remuneration must be determined pursuant to the rules set out in National Instrument 51-102 (footnote 3), rules that may result in the summary compensation table showing more than five Named Executive Officers.
Indeed, you stated that according to the Explanatory Notes of the Department of Finance relating to the definition of “executive remuneration” (footnote 4), the legislator indicates that executive compensation corresponds to “the total amount of compensation reported for the five Named Executive Officers (within the meaning of those rules)” (emphasis added). This is generally the total compensation reported by the entity for its chief executive officer, its chief financial officer and its three most highly compensated executive officers.
According to the definitions in section 1.2 of National Instrument 51-102 (footnote 5), an individual is considered to be the chief executive officer or chief financial officer if the individual has acted in that capacity for or any part of the most recently completed financial year. Consequently, if there has been a change in either of those positions during the year, the summary compensation table could show more than five named executive officers.
The “executive remuneration” should not include the compensation of a person who has held several positions within the same entity
As stated previously, you are of the view that executive remuneration must be determined pursuant to the rules set out in National Instrument 51-102 (footnote 6). You indicated that it is stated in section 1.3 of Schedule 51-102A6 of National Instrument 51-102 (footnote 7) under the heading “Information for full financial year” that if a Named Executive Officer acted in that capacity for the company during part of the financial year, that person is required to provide details of all of the compensation received for that financial year.
Consequently, you are of the view that executive remuneration within the meaning of paragraph (a) of that definition in subsection 125.7(1) includes the earnings realized by the Named Executive Officer in the performance of other duties with the company during the fiscal year, if any.
Finally, you are of the view that paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1) does not provide for any adjustment to the total amount that is reported in the Statement, even where a person holds more than one position. In fact, the legislator has expressly provided for an adjustment in the definition of the “executive compensation repayment amount” in paragraph 125.7(1) to take into account the calendar year, but has not done so in paragraph (a) of the definition of “executive remuneration” in paragraph 125.7(1).
We agree with you that the draft assessment issued to the taxpayer is well founded. Indeed, we are of the opinion that, under paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1), the executive compensation for an eligible entity corresponds to the total amount reported in a Statement for the Named Executive Officers. Finally, we are of the view that no adjustment is provided for in that paragraph with respect to the total amount reported in a Statement.
We agree with your arguments in support of your position and we add the following additional comments regarding the representations made by the Taxpayer's representatives on the difference between the French and English versions of the wording of paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1).
Jurisprudence relating to the principles of interpretation of bilingual laws, in particular, in the Supreme Court of Canada's decisions R. v. Daoust (footnote 8) and The Queen v. S.A.C. (footnote 9), indicates to us that if there is ambiguity in one version of the provision and not in the other, it is necessary to determine, if possible, the meaning common to both versions. The common meaning will favour the version that is not ambiguous.
Contrary to the claims of the representatives of the taxpayer, we are of the view that the English version of the wording of that paragraph is clear and unambiguous since it refers only to “Named Executive Officers”, being the “membres de la haute direction visé” in French.
As to whether the French version of the wording of this paragraph refers to “membres de la haute direction” and “membres de la haute direction visés”, two distinct expressions defined in National Instrument 51-102 (footnote 10), we are of the opinion that, according to the meaning common to both versions, the French version refers only to “membres de la haute direction visés”.
This common meaning is also consistent with the intent of the legislator. Indeed, according to the explanatory notes of the Department of Finance cited above (footnote 11), when an entity files a Statement, the executive remuneration corresponds to “the total amount of compensation reported for the five Named Executive Officers (within the meaning of those rules)” (emphasis added).
Those same Explanatory Notes also state that the executive compensation for a given entity generally corresponds to the total compensation reported by that entity for its Chief Executive Officer, Chief Financial Officer and its three other most highly compensated executives. This list explicitly refers to the same persons as those covered by the definition of “Named Executive Officer”, a term defined in section 1.2 of Form 51-102F6 of National Instrument 51-102 (footnote 12).
Thus, we are of the view that, under paragraph (a) of the definition of “executive remuneration” in subsection 125.7(1), the legislator is referring to the total amount that is reported in a Statement for the Named Executive Officers, without any adjustments.
Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.
Best regards,
Amanda Couvrette, CPA, CA
Acting Director
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and
Regulatory Affairs Branch
FOOTNOTES
Due to the requirements of our systems, the footnotes contained in the original document are reproduced below:
1 Regulation 51-102 respecting Continuous Disclosure Obligations, V-1.1, r. 24 of the Securities Act, CQLR, c. V-1.1,
https://lautorite.qc.ca/fileadmin/lautorite/reglementation/valeurs-mobilieres/51-102/2023-06-09/2023juin09-51-102-vofficielle-en.pdf
2 Explanatory Notes Relating to the Income Tax Act and to Other Legislation, https://fin.canada.ca/drleg-apl/2021/bia-leb-0421-n1-eng.pdf
3 Supra, note 1.
4 Supra, note 2.
5 Supra, note 1. [TaxInterpretations note: Found at FORM 51-102F6 STATEMENT OF EXECUTIVE COMPENSATION, ITEM 1 GENERAL PROVISIONS, 1.2 Definitions]
6 Idem [TaxInterpretations note: Found at FORM 51-102F6 STATEMENT OF EXECUTIVE COMPENSATION, ITEM 1 GENERAL PROVISIONS, 1.3 Preparing the Form]
7 Idem
8 R. v. Daoust, [2004] 1 S.C.R. 217, 2004 SCC 6.
9 The Queen v. S.A.C., [2008] 2 S.C.R. 675, 2008 SCC 47.
10 Supra, note 1.
11 Supra, note 2.
12 Idem
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