1998 Ruling 9820743 - EMPLOYEE BENEFIT PLAN STATUS

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: Classification of arrangement as stock option plan or employee benefit plan

Position: It is an employee benefit plan

Reasons: There is no agreement to issue shares to employees

xxxxxxxxxx
xxxxxxxxxx
xxxxxxxxxx					982074
Attention:	xxxxxxxxxx
xxxxxxxxxx, 1998

Dear Sirs:

Re: Advance Income Tax Ruling Request
xxxxxxxxxx
xxxxxxxxxx

This is in reply to your letters of XXXXXXXXXX, in which you requested a ruling on behalf of the above-noted taxpayer in respect of the income tax consequences arising out of the proposed transactions described below. We also acknowledge your correspondence of XXXXXXXXXX as well as the information provided during our various telephone conversations (XXXXXXXXXX).

We understand that to the best of your knowledge and that of the taxpayer, none of the issues involved in this ruling request:

(a) are in an earlier return of the taxpayer or a related person;

(b) are being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person;

(c) are under objection by the taxpayer or a related person:

(d) are before the courts; and

(e) are the subject of a ruling previously issued by this Directorate to the taxpayer or a related person, except as noted below.

In this letter, unless otherwise indicated, all statute references are to the Income Tax Act (Canada) (R.S.C. 1985, 5th supplement, c. 1, as amended) (the "Act").

Our understanding of the relevant facts, proposed transactions and purpose thereof is as follows:

Relevant Facts

1. XXXXXXXXXX has established a deferred stock bonus plan for its executives and a separate deferred stock bonus plan for its successful XXXXXXXXXX (the plans will be collectively referred to as the "DSBPs") . Although we have not seen the documentation for either plan, the relevant features of the DSBPs with regard to this ruling request are as follows:

(a) a portion of the annual bonus to which a participant is otherwise entitled is to be paid in the form of common shares of XXXXXXXXXX the parent of XXXXXXXXXX. The annual bonus is in addition to the participant's regular compensation for a year;

(b) a separate trust has been established in connection with each of the DSBPs. XXXXXXXXXX contributes money to the trustees of the trusts to purchase the shares that are ultimately to be delivered to the participants in the respective DSBPs. The trustees of the trust may only acquire shares of XXXXXXXXXX on the open market. No XXXXXXXXXX shares are acquired from XXXXXXXXXX. The trustees hold the XXXXXXXXXX shares in trust until such time as the shares vest or are forfeited in accordance with the terms of the particular DSBP;

(c) except as noted below, the shares purchased by the trustees in respect of a particular participant vest on December 31 of the third year following the fiscal year of XXXXXXXXXX to which the bonus relates;

(d) a participant is not entitled to non-vested shares if terminated for cause or leaves to assume a position with a competitor within a twelve month period. In the event of the death of a participant, the shares will vest with the participant immediately prior to death and the vested shares will be distributed to the participant's estate. The vesting date may also be accelerated in other circumstances;

(e) on the date of vesting, the trustees shall forthwith distribute to the participant (or his estate) the vested shares. In all circumstances, the vested shares are to be distributed to the participant or his estate on or before December 31 of the third year following the fiscal year of XXXXXXXXXX to which the services to which the shares relate were rendered;

(f) XXXXXXXXXX is the income beneficiary of the trusts. All dividends received by the trusts will be paid to the income beneficiaries by the end of the calendar year in which the trusts receive the dividends. In each calendar year, XXXXXXXXXX will pay an amount in cash to the participants equal to the dividends received by the trusts and distributed, net of any trust expenses, to XXXXXXXXXX in respect of each particular participant's non-vested shares; and

(g) the trustees will maintain separate accounts for each participant to track the number of shares purchased on the participant's behalf and the number of shares distributed to or forfeited by the participant.

2.

xxxxxxxxxx

Among other rulings provided, the DSBPs were ruled to constitute “employee benefit plans" as defined in subsection 248(1) of the Act.

3.

xxxxxxxxxx

Proposed Transactions

4.

XXXXXXXXXX

5.

XXXXXXXXXX

Purpose of the Proposed Transactions

6.

XXXXXXXXXX

Rulings

Provided that the above statements are accurate and constitute complete disclosure of all the relevant facts, proposed transactions and purpose thereof, and the proposed transactions are carried out as described herein, our advance income tax rulings are as follows:

A. The provisions of subsections 7(1) and 7(3) of the Act will not apply as a result of the DSBPs exchanging the shares of XXXXXXXXXX.

B. The proposed transactions, in and by themselves, will not alter the previous rulings given in the First Ruling and the Second Ruling.

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 proposed transactions are completed within six months of this letter.

Yours truly,

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