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:
1)Whether arrangement complies with Regulation 6801(d);
2)whether amounts payable after death under new arrangement are included in deceased's income or recipient's income by virtue of 70(1) or 70(2).
Position:
1)Yes;
2)amount paid after death and payable because of termination of employment before death or payable because of death are "rights or things" to which 70(2) and 70(3) apply.
Reasons:
1) & 2) Routine - see E9700303.
XXXXXXXXXX 970029
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Re: Advance Income Tax Ruling
XXXXXXXXXX
Incentive Compensation Arrangement
This is in reply to your letters of XXXXXXXXXX, in which you request an advance income tax ruling on behalf of the above-named taxpayer, and further to our telephone conversations
XXXXXXXXXX.
Our understanding of the facts and proposed plan is as follows:
FACTS
1.XXXXXXXXXX is incorporated under the laws of Canada and has its head office in XXXXXXXXXX. It is the parent company of
XXXXXXXXXX.
2. XXXXXXXXXX Directors are paid a cash fee by XXXXXXXXXX for their services as a Director (the "Fees").
3. XXXXXXXXXX.
PROPOSED PLAN
4.XXXXXXXXXX proposes to establish a XXXXXXXXXX plan, the XXXXXXXXXX, to provide benefits to Directors in respect of their service after XXXXXXXXXX. The XXXXXXXXXX would apply in respect of service after XXXXXXXXXX both by current Directors and by individuals who become Directors after XXXXXXXXXX.
5.The relevant terms of the XXXXXXXXXX are as follows.
(a) XXXXXXXXXX. Existing Directors and individuals who become Directors after XXXXXXXXXX would be granted XXXXXXXXXX ("Units") from time to time in recognition of their service after XXXXXXXXXX as members of the Board. The number of Units granted to a Director in respect of a particular year during which the individual renders services as a Director will be based on a portion of the Fees payable to that Director for that year. A Director would receive one Unit for each $XXXXXXXXXX in Fees paid to him/her in respect of that year. As confirmed in the above-referenced telephone conversation of XXXXXXXXXX, each Director participating in the XXXXXXXXXX will enter into an agreement in writing with his employer reflecting the terms of the arrangement as described herein.
(b)Units will be fully vested upon being awarded to an Executive.
(c)The value of a Unit at any particular date will be equal to the average of the average of the closing prices for XXXXXXXXXX Shares XXXXXXXXXX on the five trading days immediately prior to the particular date. XXXXXXXXXX.
(d)A Director will be credited with additional Units whenever cash dividends are paid on XXXXXXXXXX Shares. The number of additional Units credited to a Director in connection with the payment of dividends on the XXXXXXXXXX Shares will be based on the actual amount of dividends that would have been paid to such Director if he/she had been awarded actual XXXXXXXXXX Shares under the XXXXXXXXXX rather than Units and on the notional value of the Units determined in accordance with 5(c) above as at the date on which dividends are declared on the XXXXXXXXXX Shares.
(e)In the event of a stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off or other distribution (other than normal cash dividends) of XXXXXXXXXX assets to shareholders, or any other change affecting the XXXXXXXXXX Shares, such proportionate adjustments, if any, as the Personnel Committee of the Board of Directors in its discretion may deem appropriate to reflect such change, will be made with respect to the number of Units outstanding under the XXXXXXXXXX, provided (as confirmed in the above-referenced telephone conversation of XXXXXXXXXX) such proportionate adjustment does not contravene the condition in 5(i) below.
(f)Units will be redeemable and the value thereof immediately payable at the Director's option at a time after the Director ceases to be a member of the Board. The Director will redeem the Units by filing a written notice of redemption with XXXXXXXXXX specifying a redemption date at least five business days after the date on which the redemption notice is provided to XXXXXXXXXX, provided that, in any event, the payment to the Director of the value of the Director's Units will take place no later than XXXXXXXXXX of the first calendar year commencing after the Director ceases to be a member the Board.
(g)If a Director dies before ceasing to be a member of the Board, the Director's surviving spouse or, if there is no surviving spouse, the Director's legal representative, may redeem the Director's Units by filing a written notice of redemption with XXXXXXXXXX specifying a redemption date at least five business days after the date on which the redemption notice is provided to XXXXXXXXXX, provided that, in any event, the payment to the spouse or legal representative of the value of the Director's Units will take place no later than XXXXXXXXXX of the first calendar year commencing after the Director's date of death.
(h)If a Director dies after ceasing to a member of the Board but before delivering a notice of redemption with respect to his Units to XXXXXXXXXX, the Director's surviving spouse, or where there is no surviving spouse, the Director's legal representative, may redeem the Director's Units by filing a written notice of redemption with XXXXXXXXXX specifying a redemption date at least five business days after the date on which the redemption notice is provided to XXXXXXXXXX, provided that, in any event, the payment to the spouse or legal representative of the value of the Director's Units will take place no later than XXXXXXXXXX of the first calendar year commencing after the date the Director ceased to be a member of the Board.
(i)No amount will be paid to, or in respect of, a Director under the XXXXXXXXXX or pursuant to any other arrangement to compensate for a downward fluctuation in the price of XXXXXXXXXX Shares, nor will any other form of benefit be conferred upon, or in respect of, a Director for such purpose.
(j)The aggregate value of the Units redeemed by or in respect of a Director pursuant to paragraphs 5(f), (g) or (h) above, determined in accordance with paragraph 5(c) above, as at the date of redemption will be paid to the Director, or his surviving spouse or legal representative in the event of the Director's death, in the form of cash, XXXXXXXXXX Shares or a combination thereof, at the discretion of XXXXXXXXXX. The Director, spouse or legal representative will have a contractual right to receive the value of the redeemed Units. The discretion on the part of XXXXXXXXXX will be limited to determining whether the payment will be in the form of a cash payment directly to the individual or whether XXXXXXXXXX will make a cash outlay and use that amount to purchase, on behalf of the individual, shares on the open market (or a combination of the two, as the case may be).
(k)The XXXXXXXXXX may be amended or terminated at any time by the Board, provided that any such amendment or termination will not reduce the rights accrued to any Director at the date of amendment or termination of the XXXXXXXXXX.
In particular, and with respect to termination as confirmed in our telephone conversation of XXXXXXXXXX, the only effect of the termination will be that the granting of additional Units (other than Units reflecting dividends on XXXXXXXXXX Shares) will be discontinued as of a specific date and no new participants will be admitted to the XXXXXXXXXX after that date. However, an existing participant on that date (i.e. the date as of which no further service-related Units are granted) will be entitled to the number of Units actually granted to him/her up to that date and will continue to be eligible to receive Units in respect of dividends paid on XXXXXXXXXX Shares until he/she redeems his/her Units in accordance with the terms of the XXXXXXXXXX as set out above, although no new Units will be awarded to such a participant on account of his/her service as a Director of XXXXXXXXXX. During this time, the rules of the XXXXXXXXXX as set out above will continue to apply (e.g., Units will continue to fluctuate in value based on changes in the fair market value of XXXXXXXXXX shares). In effect the operation of the XXXXXXXXXX will continue unchanged except that no new participants will be enrolled in the XXXXXXXXXX and no new Units (other than in recognition of dividends on XXXXXXXXXX shares) will be granted. The XXXXXXXXXX will finally terminate (for all purposes) when the last remaining participant redeems his/her Units thereunder.
6. As stated in your letter of XXXXXXXXXX, no amount will be contributed to a third party or otherwise set aside to fund the benefits under the XXXXXXXXXX.
PURPOSE OF PROPOSED PLAN
7.The purpose of the XXXXXXXXXX is to recognize Directors' long service on the Board and their contribution to XXXXXXXXXX longer term profitability in a manner that is sensitive to shareholder concerns.
8.(a)To the best of your knowledge and that of XXXXXXXXXX none of the issues involved in your ruling request is being considered by a tax services office or taxation centre in connection with a tax return already filed and none is under objection or appeal.
(b)The address of XXXXXXXXXX, and it is served by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre.
RULINGS GIVEN
Provided that the statement of facts and description of the proposed plan are correct and constitute a complete disclosure of all the relevant facts and relevant terms of the proposed plan, that the proposed plan is instituted in the manner described herein, we rule as follows:
A.An arrangement in writing between a Director and XXXXXXXXXX under the terms of the XXXXXXXXXX will be a prescribed plan or arrangement as described in paragraph 6801(d) of the Income Tax Regulations (the "Regulations").
B.Except for those amounts identified in Ruling C below, no amount will be included in the income of a Director pursuant to subsection 5(1), paragraph 6(1)(a), subsection 6(3) or paragraph 56(1)(a) of the Act as a result of, in and of itself, the Director's participation in the XXXXXXXXXX.
C.An amount paid by XXXXXXXXXX under the XXXXXXXXXX to a Director in accordance with 5(f) above will be included in the income of the Director pursuant to subsection 5(1) and section 6 of the Act for the year in which the amount is received.
D.An amount payable by XXXXXXXXXX under the XXXXXXXXXX to a spouse or legal representative in accordance with 5(g) or (h) above will constitute a "right or thing" for the purposes of subsection 70(2) of the Act.
E.Subject to paragraph 18(1)(a) and section 67 of the Act, an amount referred to in Ruling C or D that is paid by XXXXXXXXXX in a particular year will be deductible for that year in accordance with section 9 of the Act.
The above advance income tax rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and are binding upon Revenue Canada provided the proposed plan is implemented by XXXXXXXXXX. However, these rulings do not apply with respect to participation in the XXXXXXXXXX that has been amended in accordance with 5(k) above or with respect to Units issued before such an amendment the rights and conditions of which are affected by such an amendment.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1996
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