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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Can non-resident non-employee director's fees be allocated between countries based on days worked in Canada divided by number of days in the year?
Position:
No, Question of fact.
Reasons:
Will not accept that the director works every day
XXXXXXXXXX 962639
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letters dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).
Our understanding of the facts and proposed transactions is as follows:
Facts
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX currently has a Board of Directors composed of XXXXXXXXXX directors.
For the upcoming term of office, XXXXXXXXXX will pay non-employee directors the following amounts:
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
A recent trend among leading public companies is to pay a portion of each director's compensation in shares of stock instead of cash, facilitating and encouraging the acquisition of a greater ownership interest in the company. In response to that trend XXXXXXXXXX is contemplating the establishment of a stock compensation plan, more particularly described below.
PROPOSED TRANSACTIONS
XXXXXXXXXX will establish "XXXXXXXXXX" for the benefit of Canadian and non-resident non-employee directors of XXXXXXXXXX (the "Plan"), the principal features of which will be as follows:
(a) The Plan will be administered by the Human Resources Committee of XXXXXXXXXX (or a subcommittee thereof) or such other persons as may be designated by XXXXXXXXXX A trust or custodial account will also be established in order to carry out the objectives of the Plan, more particularly described below. The trustee of the trust or custodian of the custodial account is referred to herein as the "Trustee";
(b) Each non-employee director of XXXXXXXXXX will be allocated XXXXXXXXXX
(c) XXXXXXXXXX
(d) XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
(a) XXXXXXXXXX
(b) XXXXXXXXXX
(c) XXXXXXXXXX
(i) XXXXXXXXXX
(ii) XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Purpose of the Proposed Transactions
The purpose of the proposed transactions is to provide non-employee directors of XXXXXXXXXX with a stock based compensation program.
To the best of your knowledge and the knowledge of XXXXXXXXXX none of the issues involved in this ruling request is being considered by a tax services office or taxation centre in connection with an income tax return already filed, and none of the issues is under objection or appeal.
Rulings Given
Provided that the statement of facts and proposed transactions are correct and constitute a complete disclosure of all the relevant facts and proposed transactions, and that the proposed transactions are completed in the manner described herein, we rule as follows:
The Plan will not constitute an employee benefit plan as that term is defined in subsection 248(1) of the Act.
The amount to be included in the income of a resident director for a year under the Plan will consist of the aggregate of the following amounts:
under paragraph 6(1)(c) of the Act, the amount paid by XXXXXXXXXX to the resident director or to the Trustee on behalf of the resident director for a year under the Plan;
under paragraph 6(1)(c) of the Act, the amount paid by XXXXXXXXXX under the Deferred Option of the Plan XXXXXXXXXX
under paragraph 6(1)(a) of the Act, the amount of brokerage fees paid XXXXXXXXXX
The amount to be included in the income of a non-resident director for a year under the Plan will consist of the aggregate of the following amounts:
under paragraph 6(1)(c) and subparagraph 115(1)(a)(i) of the Act, the amount, to the extent it is attributable to services rendered in Canada, paid by XXXXXXXXXX to a non-resident director or to the Trustee on behalf of the non-resident director for a Year under the Plan;
under paragraph 6(1)(c) and subparagraph 115(1)(a)(i) of the Act, the amount, to the extent it is attributable to services rendered in Canada, paid by XXXXXXXXXX under the Deferred Option of the Plan XXXXXXXXXX
under paragraph 6(1)(a) and subparagraph 115(1)(a)(i) of the Act, the amount of brokerage fees paid by XXXXXXXXXX paragraph 7 and paragraph 8(c)(ii) above.
The cost of the XXXXXXXXXX common shares acquired by the resident director will include the Trustee's cost, which was included in the particular director's income in ruling B above, to acquire the shares plus the brokerage fees paid by XXXXXXXXXX which was included in the particular director's income in ruling B above, with respect to the acquisition of such shares.
The Deferred Option under the Plan will be a prescribed plan or arrangement as described in paragraph 6801(d) of the Income Tax Regulations and will therefore be exempted from the definition of a "salary deferral arrangement" as contained in subsection 248(1) of the Act.
Subject to paragraph 18(1)(a) and section 67 of the Act, any amounts referred to in rulings B and C above that are paid by XXXXXXXXXX in a particular year will be deductible by XXXXXXXXXX in accordance with section 9 of the Act.
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 70-6R2 dated September 28, 1990, and the Special Release thereto dated September 30, 1992, and are binding on Revenue Canada, Customs, Excise, and Taxation provided that the Plan is implemented as described herein by XXXXXXXXXX.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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