30 November 1996 Ruling 9720993 - BONUSES, DEFERRED SHARE UNITS

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 bonuses in the form of deferred share units constitute an SDA?

Position:

No

Reasons:

Satisfies conditions of 6801(d) of the Regulations.

XXXXXXXXXX							972099
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter 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 (the "Company") is a public corporation and a taxable Canadian corporation. The expressions "public corporation" and "taxable Canadian corporation" have the meaning assigned by subsection 89(1) of the Income Tax Act (the "Act").

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

A certain portion of the compensation paid to senior management officers of the Company each year is dependent on the Company achieving certain qualitative and quantitative goals and the employee's individual performance measured against division/individual objectives established at the beginning of the Company's fiscal year. Achievement of these goals is rewarded through a bonus which is included in the employee's income from employment. The bonus is generally paid in XXXXXXXXXX after the Company's Board of Directors approves its financial statements.

Proposed Transaction

The Company proposes to establish a performance incentive plan (the "Plan") for the benefit of its senior management officers (the "Participants"). It is our understanding that the Plan will operate as follows:

A Participant will be entitled to elect each year, prior to becoming entitled to performance incentive compensation, whether to have all or part of the performance incentive compensation in the form of deferred stock units (the "Units"). The Company will maintain a record (the "notional account") of the Units allocated to each Participant. Once an election is made, it is irrevocable with respect to any Units granted in the year under the Plan or any performance incentive compensation paid in cash in the year.

The notional account maintained for each Participant will reflect the following:

the number of Units that will be credited to a Participant's notional account will be calculated by dividing the dollar value of the performance incentive compensation that the Participant has elected to receive in the form of Units by the closing price of the Company's common shares on a specified stock exchange on the date the Units are allocated to the Participant;

additional Units may be granted from time to time to reflect dividends paid on the Company's common shares. The number of additional Units credited to a Participant's notional account will be determined by dividing the amount of the dividends that would have been paid on the Units allocated to the Participant (where each Unit represents a Company common share) by the fair market value of a Company common share on the date that the cash dividends are paid; and

in the event of any stock dividend, stock split, combination or exchange of shares, consolidation, spin-off or other distribution (other than normal dividends) of Company assets to shareholders, or any other change affecting Company common shares, the number of Units held in the Participant's notional account may be adjusted to reflect the particular event.

The Units allocated to a Participant's notional account will be fully vested in the Participant.

Participants will only be entitled to redeem the Units after termination of employment, death or retirement ("Cessation of Employment"). In the event of the Participant's death, the Participant's designated beneficiary (a dependant or relation of the employee) will be entitled to redeem the Units. Redemption of the Units will, in any event, take place no later than the end of the first calendar year following the date of Cessation of Employment.

Upon redemption, the fair market value of the Units allocated to the Participant's notional account will be paid to the Participant in cash. The fair market value will be determined by taking the product of the number of Units allocated to the Participant and the fair market value of a Company common share on the redemption date.

There will be no common shares issued, authorized, reserved or sold by the Company (or a related company) at any time in connection with Units allocated under the Plan. The Company (or a related company) will not purchase any common shares at any time in connection with any Units allocated under the Plan.

Participants will not be entitled, either immediately or in the future, absolutely or contingently, to receive or obtain any amount or benefit designed to reduce the impact of any reduction in the fair market value of the shares of the Company.

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

Purpose of the Proposed Transaction

The purpose of the proposed transactions is to aid the Company in securing and retaining officers and other key employees with outstanding ability, to provide compensation opportunities that are compatible with shareholders' interests and to encourage equity ownership.

Additional Information

To the best of your knowledge and the knowledge of the Company, 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 transaction are correct and constitute a complete disclosure of all the relevant facts and proposed transaction, that the Plan is not amended as allowed in paragraph 3(h) above, and that the Plan is implemented as described herein, we rule as follows:

In respect of the Units allocated to a Participant under the Plan, the amount paid to a Participant, as described in paragraph 3(e) above, will be the only amount included in the Participant's income under subsection 5(1) or paragraph 6(1)(a) of the Act.

An arrangement in writing between the Participant and the Company under the terms of 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.

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 this letter.

Yours truly,

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