30 November 1996 Ruling 9713003 - DEFERRED SHARE UNITS, DIRECTOR'S FEES

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:

Will the payment of director's fees in the form of deferred share units constitute an SDA?

Position: No

Reasons:

Satisfies conditions of 6801(d) of the Regulations.

XXXXXXXXXX							971300
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

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-referenced 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

1. XXXXXXXXXX is a company incorporated under the laws of Canada, a resident of Canada and a public corporation. At present, XXXXXXXXXX has approximately XXXXXXXXXX registered holders of its XXXXXXXXXX shares ("XXXXXXXXXX Shares"). The principal markets for trading in XXXXXXXXXX Shares are XXXXXXXXXX.

XXXXXXXXXX deals with the XXXXXXXXXX Tax Services Office and files its tax returns with the XXXXXXXXXX Taxation Centre.

2. XXXXXXXXXX, its subsidiaries and its related companies are involved in

XXXXXXXXXX

3. XXXXXXXXXX currently has a Board of Directors composed of XXXXXXXXXX directors (the "Board"). XXXXXXXXXX

Proposed Transactions

4. XXXXXXXXXX is proposing to establish a new arrangement (the "Plan") for the benefit of its XXXXXXXXXX directors (the "Participants"). Directors of XXXXXXXXXX who receive employment income, other than director's fees, from XXXXXXXXXX or from one of its subsidiaries or related companies will not be eligible to participate in the Plan. The principle features of the Plan are as follows:

a) The Plan will be administered by the XXXXXXXXXX (the "Committee"). A notional account will be established for each Participant in order to carry out the objectives of the Plan, more particularly described below.

b) Each Participant will be permitted to elect on or before the day of the XXXXXXXXXX annual general meeting of shareholders (the "Annual General Meeting") each year to receive the annual retainer paid by XXXXXXXXXX, for the period from that Annual General Meeting to the next Annual General Meeting, but not including meeting, committee or additional fees or retainers to committee chairs (the "Annual Board Retainer"), as follows:

i) $XXXXXXXXXX in cash and $XXXXXXXXXX in restricted stock units ("Restricted Stock Units"); or

ii) $XXXXXXXXXX in Restricted Stock Units.

However, since the Plan will be implemented part way through a year, the limits for the first year of the Plan will be set as follows:

i) $XXXXXXXXXX in cash and $XXXXXXXXXX in Restricted Stock Units; or

ii) $XXXXXXXXXX in Restricted Stock Units.

The Chairman of the Board will be entitled to receive $XXXXXXXXXX in Restricted Stock Units in addition to his or her Annual Board Retainer.

c) The number of Restricted Stock Units that will be credited to a Participant's notional account will be calculated by dividing the dollar value of the Restricted Stock Units' portion of the Annual Board Retainer by the five day average closing price of a XXXXXXXXXX Share on XXXXXXXXXX Stock Exchange on the fifth to ninth trading days after the Annual General Meeting.

d) Restricted Stock Units will be fully vested upon being granted or credited to a Participant's notional account.

e) A Director's notional account will be credited with additional Restricted Stock Units whenever cash dividends are paid on XXXXXXXXXX Shares. The number of additional Restricted Stock Units credited to the notional account will be determined by dividing the amount of dividends that would have been paid on the Restricted Stock Units (where each Restricted Stock Unit represents a XXXXXXXXXX Share) by the fair market value of a XXXXXXXXXX Share on the date that the cash dividends are paid.

f) In the event of any stock dividend, stock split, combination or exchange of shares, consolidation, spin-off or other distribution (other than normal cash dividends) of XXXXXXXXXX assets to shareholders, or any other change affecting the XXXXXXXXXX Shares, the Committee may adjust the number of Restricted Stock Units held in a Participant's notional account in order to reflect the particular event.

h) The entitlement date (the "Entitlement Date") of a Participant will be the earlier of his or her retirement date or date of death. The Restricted Stock Units will be valued at the five day average closing price of a XXXXXXXXXX Share commencing on the next trading day after the Entitlement Date (the "Value"). XXXXXXXXXX will advise a designated broker that a Value, net of applicable withholding taxes, is available to acquire, on the Participant's behalf, XXXXXXXXXX Shares on the open market. The designated broker will acquire the maximum number of whole XXXXXXXXXX Shares that it can with the Value. XXXXXXXXXX will pay the broker for the XXXXXXXXXX Shares that it acquired on the Participant's behalf. In addition, XXXXXXXXXX will pay all brokerage fees arising in connection with the acquisition of XXXXXXXXXX Shares by the broker in the open market. XXXXXXXXXX will also pay the amount not required by the broker to acquire the maximum number of XXXXXXXXXX Shares (the "Fractional Share Portion") to the Participant. The broker will deliver the XXXXXXXXXX Shares to the Participant or his or her estate.

i) If a Participant becomes an employee of XXXXXXXXXX or a related corporation, his or her membership in the Plan will be suspended and the Entitlement Date will be the later of the date of retirement from employment with XXXXXXXXXX or the ceasing to be a director of XXXXXXXXXX.

j) The terms of the Plan will provide that the Board can unilaterally amend or terminate the Plan at any time except with respect to rights that have accrued to a Participant at the date of the amendment or termination.

k) XXXXXXXXXX will be responsible for all costs relating to the administration of the Plan.

Purpose of the Proposed Transactions

5. A recent trend among leading public companies is to pay a portion of each director's compensation in shares of stock instead of cash, thereby facilitating and encouraging the acquisition of a greater ownership interest in the company. The purpose of the Plan is to enhance XXXXXXXXXX ability to attract and retain talented individuals to serve as members of the Board and to promote a greater alignment between Directors and the shareholders of XXXXXXXXXX.

Additional Information

6. 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 of the relevant facts and proposed transactions, and that the terms of the Plan are as set out in your submissions, we rule as follows:

7. Provided there are no amendments to the Plan as allowed under subparagraph 4(j) above, the amount to be included in the income of a resident Participant will consist of the aggregate of the following amounts:

(a) under paragraph 6(1)(c) of the Act, the Fractional Share Portion paid by XXXXXXXXXX to the resident Participant as described in subparagraph 4(h) above;

(b) under paragraph 6(1)(c) of the Act, the amount paid by XXXXXXXXXX to the broker (excluding brokerage fees) to acquire the particular shares distributed to the Participant as described in subparagraph 4(h) above;

(c) under paragraph 6(1)(c) of the Act, the dollar amount of the applicable withholdings withheld by XXXXXXXXXX as described in subparagraph 4(h) above; and

(d) under paragraph 6(1)(a) of the Act, the amount of the brokerage fees paid by XXXXXXXXXX for the acquisition of the particular XXXXXXXXXX Shares distributed to the Participant by the broker as described in subparagraph 4(h) above.

8. Provided there are no amendments to the Plan as allowed under subparagraph 4(j) above, the amount to be included in the income of a non-resident Participant for a year under the Plan will consist of the aggregate of the following amounts:

(a) under paragraph 6(1)(c) and subparagraph 115(1)(a)(i) of the Act, the Fractional Share Portion, to the extent it is attributable to services rendered in Canada, paid by XXXXXXXXXX to the non-resident Participant as described in subparagraph 4(h) above;

(b) 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 the broker (excluding brokerage fees) to acquire the particular shares distributed to the non-resident Participant as described in subparagraph 4(h) above;

(c) under paragraph 6(1)(c) and subparagraph 115(1)(a)(i) of the Act, the dollar amount of the applicable withholdings withheld by XXXXXXXXXX as described in subparagraph 4(h) above; and

(d) under paragraph 6(1)(a) and subparagraph 115(1)(a)(i) of the Act, the amount of the brokerage fees paid by XXXXXXXXXX, to the extent they are paid with respect to the acquisition of XXXXXXXXXX Shares, the value of which was brought into income under ruling B(b) above, for the acquisition of the particular XXXXXXXXXX Shares distributed to the non-resident Participant by the broker as described in subparagraph 4(h) above.

9. The cost of the XXXXXXXXXX Shares acquired by the resident Participant will include the broker's cost which was included in the Participant's income in ruling A(b) above, to acquire the shares and the brokerage fees paid by XXXXXXXXXX, which was included in the Participant's income in ruling A(d) above, with respect to the acquisition of such shares.

10. 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.

11. Subject to paragraph 18(1)(a) and section 67 of the Act, any amounts referred to in rulings A and B above that are paid by XXXXXXXXXX in a particular year in respect of Participants 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 70-6R3 dated December 30, 1996, and are binding on Revenue Canada provided that the Plan is implemented as described herein within six months of the date of this letter.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch