30 November 1997 Ruling 9807423 - STOCK PLAN FOR DIRECTORS

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 6801(d) apply where a director elects to receive all or part of the annual retainer and meeting fees in deferred share units?

Position:

Yes;

Reasons:

Plan meets conditions in 6801(d).

XXXXXXXXXX							3-980742
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of 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).

DEFINITIONS AND ABBREVIATIONS

In this letter, unless otherwise expressly stated or the context otherwise requires:

"Annual Retainer" means annual retainer amount of a Director;

"Act" means the Canadian Income Tax Act;

"Board" means Opco's board of directors;

"Committee" means Opco's Human Resources and Compensation Committee of the Board;

"Director" means any director of Opco who is not otherwise employee or full-time officer of Opco or its affiliates and subsidiaries;

"Director's Account" means the notional deferred share account of a Director;

"EBP" (or "employee benefit plan") has the meaning assigned by subsection 248(1) of the Act;

"Opco" means XXXXXXXXXX;

"Plan" means Opco's stock plan for non-employee directors;

"Public Corporation" has the meaning assigned by subsection 89(1) of the Act;

"Purchase Date" is, unless otherwise determined by the Committee, the XXXXXXXXXX;

"Regulations" means the Income Tax Regulations;

"RCA" (or "retirement compensation arrangement") has the meaning assigned by subsection 248(1) of the Act;

"SAP" means the Share Award Plan for Opco's directors;

"SDA" (or "salary deferral arrangement") has the meaning assigned by subsection 248(1) of the Act;

"Settlement Date" means any date determined by a Director, or after the Director's death by her or his spouse or legal representative, which is after the Termination Date but is no later than the last business day in December of the first calendar year commencing after the Termination Date;

"Shares" means common shares of Opco;

"Termination Date" means the date of the Director's death or retirement from, or loss of, the office or employment with Opco or any related person;

"Units" means deferred share units;

"Value" on a particular date is the average of the closing prices of the Shares during the last five days on which the Shares traded ending on such particular date as reported on the XXXXXXXXXX on which Shares are listed or admitted to trading or, if the Shares are not so listed or traded, the five day simple average of the mean between the closing bid price and the closing asked price as quoted on the XXXXXXXXXX on each of the five trading days ending on that particular date, or such other market in which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to the Shares, the Value shall be the fair market value established by the Committee in good faith on that date.

FACTS

1. Opco is a corporation amalgamated under the laws of Canada. Opco is a resident of Canada and a Public Corporation. The Shares are listed on XXXXXXXXXX.

2. Opco's head office is located at XXXXXXXXXX. Opco deals with the XXXXXXXXXX Tax Services Office and files its tax returns at the XXXXXXXXXX Tax Centre. Opco has a fiscal year end of XXXXXXXXXX.

3. Opco carries on the business of marketing and manufacturing XXXXXXXXXX.

4. Currently, the Board consists of XXXXXXXXXX individuals, XXXXXXXXXX of whom are Directors.

5. For the current term of office, Opco will pay a Director the following amounts:

(a) the Annual Retainer of $XXXXXXXXXX; and

(b) a fee of $XXXXXXXXXX for each Board and committee meeting attended.

Opco also has a SAP pursuant to which Shares may, in the discretion of the Board, be purchased on behalf of Directors.

6. It is common among public companies to pay a portion of each director's compensation in the form of shares, phantom shares or stock appreciation rights, to attract talented directors and to provide directors with a greater interest in the performance of the companies they serve. Accordingly, Opco wishes to establish a stock compensation plan as described below.

PROPOSED TRANSACTIONS

7. Opco will establish the Plan for the benefit of the Directors. The plan will constitute an arrangement in writing between Opco and a Director. The principal features of the Plan will be as follows:

(a) the Plan will be administered by the Committee or such other persons as may be designated by the Board; and

(b) a Director may elect annually to receive all or a portion of the Annual Retainer in the form of Units.

8. The election contemplated by 7(b) above must generally be made in writing at least 30 days prior to the commencement of any particular year. Other time periods will apply to the year in which the Plan becomes effective and to a Director who is elected or appointed to the Board during a year. If no election is made for the year, the Director will be deemed to have elected to be paid entirely in cash.

9. The following rules will apply with respect to Units, which will not entitle a Director to any shareholder rights, including, without limitation, voting rights, dividend entitlements or rights on liquidation:

(a) the number of Units allocable to a Director will be equal to the quotient obtained when the portion of the Annual Retainer, expressed in dollars, that the Director is to receive in the form of Units is divided by the Value of a Share on the Purchase Date. These Units will be credited to the Director's Account.

(b) Units will be credited to a Director's Account with dividend equivalents when dividends are paid on the Shares and such dividend equivalents will be converted into additional Units based on the Value of a Share on the date dividends are paid; and

(c) on the Settlement Date, Opco will pay to the Director, or if the Director dies to the Director's spouse or legal representative, an amount in cash, equal to the product obtained when the number of Units credited to the Director's Account as at the Termination Date is multiplied by the Value as at the Settlement Date, less applicable withholdings.

10. A Director who makes an election in accordance with 7 and 8 above for a year may also receive (in the same percentage as applicable to his or her Annual Retainer) in the form of Units (a) amounts granted pursuant to Opco's SAP for the year; and/or (b) his or her fees otherwise payable for attending Board (or committee) meetings and serving as Chair of a Board committee during the year. Any such election shall be subject to such approvals and conditions as the Committee may impose, including appropriate adjustments to the Purchase Date.

11. Units are not transferable or assignable other than by will or the laws of descent and distribution, or if a director is under legal disability or is otherwise unable to care for his or her affairs.

12. The Board may amend the Plan as it deems necessary, and may terminate the Plan in its sole discretion.

13. The Plan will be unfunded, and Opco's obligations thereunder will constitute a general, unsecured obligation payable solely out of Opco's general assets.

PURPOSE OF THE PROPOSED TRANSACTIONS

14. The purpose of the Plan is to enhance Opco's ability to attract and retain talented individuals to serve as members of the Board and to promote a greater alignment of interests between non-employee members of the Board and the shareholders of Opco.

OTHER INFORMATION

15. To the best of your knowledge and that of Opco none of the issues in respect of which rulings are herein requested is:

(a) in an earlier return of Opco or a related person,

(b) being considered by a tax services office or tax centre in connection with a previously filed tax return of Opco,

(c) under objection by Opco or a related person,

(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and

(e) the subject of a ruling previously issued by the Income Tax Rulings and Interpretations Directorate.

RULINGS GIVEN

Provided the above statement of facts and proposed transactions are accurate and constitute a complete disclosure of all relevant facts and provided the transactions are completed as proposed, that the proposed Plan is established in the manner described in paragraphs 7 through 11 and 13 above, we rule as follows:

A. The Plan will constitute neither an EBP nor an RCA.

B. The Plan will be a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations and will therefore be exempted from the definition of an SDA.

C. The amount to be included in the income of a resident Director under paragraph 6(1)(c) of the Act for a taxation year under the Plan will be the amount paid by Opco to the Director in cash, in the year that includes the Settlement Date, in respect of the Units under the Plan credited to the Director's Account.

D. The amount to be included in the income of a non-resident Director under paragraph 6(1)(c) and subparagraph 115(1)(a)(i) of the Act for a taxation year under the Plan will be the amount, to the extent it is attributable to services rendered in Canada, paid by Opco to the Director in cash, in the year that includes the Settlement Date, in respect of the Units under the Plan credited to the Director's Account.

E. Subject to Paragraph 18(1)(a) and section 67 of the Act, any amount referred to in rulings C and D above that is a cash payment made by Opco in a particular year will be deductible by Opco for that year in accordance with section 9 of the Act.

F. Any amount referred to in rulings C or D above and payable under the Plan by Opco to a spouse or legal representative of a Director as a result of the death of the Director will constitute a "right or thing" for the purpose of subsection 70(2) of the Act.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 of December 30, 1996, issued by Revenue Canada Taxation, and are binding provided the proposed transactions are initiated on or before XXXXXXXXXX.

Yours truly,

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