1999 Ruling 9917053 - DEFERRED SHARE UNIT PLAN

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: Confirmation that the plan is a prescribed plan under paragraph 6801(d) of the Regulations.

Position: Yes

Reasons: Meets the requirements of Reg 6801(d)

XXXXXXXXXX 991705

Attention: XXXXXXXXXX

XXXXXXXXXX 1999

Dear XXXXXXXXXX:

Re: XXXXXXXXXX (the "Company")
XXXXXXXXXX
Deferred Share Unit Plan for Directors (the "Plan")

This is in reply to your letter of XXXXXXXXXX wherein you request a ruling with regard to the above taxpayer. A copy of the proposed Plan was submitted with your request.

Our understanding of the facts and proposed Plan is as follows:

FACTS

1. The Company is a corporation amalgamated under the laws of XXXXXXXXXX, a resident of Canada, and a public corporation as defined in subsection 89(1) of the Income Tax Act (the "Act"). The XXXXXXXXXX Shares of the Company are listed on the XXXXXXXXXX Exchange and the XXXXXXXXXX Exchange.

2. The Company's head office is located at XXXXXXXXXX.

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

4. The Company is primarily engaged in the
XXXXXXXXXX

5. As at the date hereof, the board of directors of the Company (the "Board") consists of the President of the Company; the Chairman of the Board; and XXXXXXXXXX other directors of the Company who are not otherwise employees of the Company ("Directors").

6. For the current term of office, the Company will pay each of its Directors, other than XXXXXXXXXX, the following amounts:

a) an annual retainer of $XXXXXXXXXX;

b) a fee of $XXXXXXXXXX for each board and committee meeting attended in person;

c) a fee of $XXXXXXXXXX for each meeting of the board or a committee attended by telephone;

d) an annual fee of $XXXXXXXXXX for the Audit Committee Chairman;

e) an annual fee of $XXXXXXXXXX for other committee chairs; and

f) an amount equal to XXXXXXXXXX% of the annual retainer, to be used by Directors for the purchase of XXXXXXXXXX Shares of the Company under the Company's Directors' Share Plan.

7. It is proposed to give Directors the opportunity to receive a portion of their compensation in the form of deferred share units ("DSUs") to attract talented Directors and to provide Directors with a greater interest in the performance of the Company. Particulars of the Plan are described below.

PROPOSED PLAN

8. The Company will establish the Plan for the benefit of Directors of the Company who are not otherwise employees of the Company and the Chairman of the Board of the Company ("Eligible Directors"). There is currently one non-resident Eligible Director. The principal features of the Plan will be as follows:

a) The Plan will be administered by the XXXXXXXXXX Committee of the Board (the "Committee") or such other persons as may be designated by the Board;

b) Each Eligible Director may elect to receive any portion of his or her Quarterly Compensation in the form of DSUs. For purposes of the Plan, "Quarterly Compensation" of an Eligible Director other than the Chairman of the Board means the amount of compensation (excluding, for greater certainty, reimbursement of expenses) payable in respect of each quarter to an Eligible Director for acting as a director of the Company including the appropriate pro rata portion of his or her annual retainer, amounts payable pursuant to the Company's Directors' Share Plan, and fees payable for attending Board or committee meetings and serving as Chair of a Board committee and, of the Chairman of the Board means an amount equal to one-quarter of the annual compensation to which he or she is entitled for acting as Chairman of the Board;

c) Eligible Directors may participate in the Plan as follows:

i) Election to Participate. An Eligible Director may elect to participate in the Plan by giving to the Secretary of the Company a written notice stating:

a) that such Eligible Director wishes to participate in the Plan, and

b) that such Eligible Director agrees to forego a specified amount or percentage of such Eligible Director's Quarterly Compensation.

ii) Change of Election/Revocation of Election. An Eligible Director who has elected to participate in the Plan may from time to time change the amount or percentage of such Eligible Director's Quarterly Compensation which such Eligible Director agrees to forego, or revoke his or her election to participate only by giving to the Secretary of the Company a written notice of such change or revocation.

iii) Crediting of DSUs for Foregone Compensation. If, on the last day of the calendar quarter, an election made in the manner indicated in (c)(i) above is in effect for an Eligible Director, the Company shall credit to such Eligible Director the number of DSUs (which may include a fractional DSU) equal to the quotient obtained by dividing:

a) the amount of Quarterly Compensation that such Eligible Director has agreed to forego for such quarter

by

b) the Fair Market Value on the last day of such quarter.

For the purposes of the Plan, "Fair Market Value" on a particular date means the weighted average price at which XXXXXXXXXX Shares of the Company trade on the XXXXXXXXXX Exchange during the ten day period prior to and including the last business day before such particular date.

iv) Crediting of DSUs for Dividends. If at any time or from time to time the Company pays a dividend or other distribution on the XXXXXXXXXX Shares, the Company shall forthwith credit to each Eligible Director's DSU Account a number of DSUs (which may include a fractional DSU) calculated by:

a) multiplying the number of DSUs credited to such DSU Account at the time of the payment of such dividend or other distribution by the amount of such dividend or other distribution paid in respect of each XXXXXXXXXX Share, and

b) dividing the product so obtained by the Fair Market Value on the day such dividend or other distribution is paid.

v) Initial Notice Following Revocation Notice. An Eligible Director who has elected to participate in the Plan and has subsequently revoked his or her election may at any time thereafter again elect to participate in the Plan in the manner indicated in (c)(i) above.

d) Termination of Board Service. On a day (the "Settlement Date") - to be determined by the Eligible Director or his or her representative in his or her sole discretion, upon at least 10 days written notice to the Company - between the date an Eligible Director to whom DSUs have been granted under the Plan ceases to be an Eligible Director, and the last business day in December of the first calendar year commencing after the Eligible Director ceases to be an Eligible Director, the Company shall pay to the Eligible Director a lump sum payment (or as the Committee may otherwise determine), net of any applicable withholdings, in cash equal to the number of DSUs credited to his or her account as of the Settlement Date multiplied by the Fair Market Value on the Settlement Date;

e) DSUs are not assignable by an Eligible Director;

f) The Board may, in its sole discretion and without the consent of any Eligible Director (acting in his or her capacity as a participant in the Plan), amend the Plan at any time, provided, however, that no amendment which prejudices the rights of Eligible Directors with respect to DSUs credited to their respective DSU Accounts prior to the date of such amendment will be made without the approval of such Eligible Directors;

g) The Board may, in its sole discretion and without the consent of any Eligible Director (acting in his or her capacity as a participant in the Plan) or beneficiary, terminate the Plan at any time by giving written notice thereof to each Eligible Director who is a participant hereunder. All amounts distributable under the Plan shall be paid to the persons entitled thereto on the Settlement Date as described in 8(d) above;

h) The Company will not make contributions to any person other than an Eligible Director or his or her personal representative in respect of the Plan nor will it set aside or hold in trust any property in respect of the Plan;

i) No amount will be paid to, or in respect of, an Eligible Director under the Plan, or pursuant to any other arrangement to compensate for a downward fluctuation in the price of the Company's XXXXXXXXXX Shares, nor will any other form of benefit be conferred upon, or in respect of, an Eligible Director for such purpose; and

j) The Company will be responsible for all costs relating to the administration of the Plan.

PURPOSE OF THE PROPOSED PLAN

9. The purpose of the Plan is to enhance the Company's ability to attract and retain talented individuals as members of the Board and to promote a greater alignment of interest between members of the Board and the shareholders of the Company.

OTHER INFORMATION

To the best of the our knowledge and the knowledge of the Company, none of the issues relevant to the rulings being requested is:

a) in an earlier return of the Company or a related person,

b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the Company or a related person,

c) under objection by the Company or a related person,

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

e) the subject of a ruling previously issued to the Company by the Directorate.

RULING GIVEN

Provided that the statement of facts and the description of the proposed Plan are correct and constitute a complete disclosure of all the relevant facts and terms of the proposed Plan, and that the proposed Plan is established in the manner described above, we rule as follows:

A. The Plan will constitute neither an "employee benefit plan" nor a "retirement compensation arrangement" as those terms are defined in subsection 248(1) of the Income Tax Act (the "Act").

B. An arrangement in writing between the Company and an Eligible Director 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.

C. Except for the amounts identified in Ruling D, no amount will be included pursuant to subsection 5(1), section 6, paragraph 56(1)(a) or subparagraph 115(1)(a)(i) of the Act in the income of an Eligible Director in respect of the Plan by reason of the implementation and operation of the Plan.

D. Cash payments received under the Plan by an Eligible Director in accordance with paragraphs 8(d) and 8(g) above and applicable withholdings will be included in the income of the Eligible Director for the year in which the payments are received pursuant to subsection 5(1), section 6 or subparagraph 115(1)(a)(i) of the Act. If an Eligible Director dies before any amount payable under 8(d) above is received, the amount payable to the Eligible Director's legal representative as a result of the death 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, any amounts referred to in ruling D above that are paid by the Company in a particular year will be deductible by the Company in accordance with section 9 of the Act.

F. No amount will be included in the income of an Eligible Director pursuant to section 5 or 6 of the Act in respect of the payment by the Company of the costs relating to the administration of the Plan.

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 the Department provided the proposed Plan in implemented on or before XXXXXXXXXX.

Yours truly,

Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate