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:
Whether arrangement is exempted from SDA definition by virtue of 6801(d);
Position:
Yes;
Reasons:
All requirements in 6801(d) are met.
XXXXXXXXXX
XXXXXXXXXX 991942
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: Advance Tax Ruling
XXXXXXXXXX (the "Corporation") - XXXXXXXXXX
Deferred Share Unit Plan (the "Plan")
This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-named taxpayer. We also acknowledge the information provided during our telephone conversations (XXXXXXXXXX) and your letter dated XXXXXXXXXX.
Our understanding of the facts and proposed Plan is as follows:
DEFINITIONS
Certain terms and expressions used in this letter are defined as follows:
"Annual Average Closing Price" of a Share, in a calendar year, is the sum of each Quarterly Average Closing Price in respect of a Share in the calendar year divided by four (4).
"Annual Board Retainer" means the annual retainer paid by the Corporation to a director in a financial year (which is also the calendar year) for service on the board together with board meeting fees, committee fees or additional fees and retainers to committee chairs.
"Board" means the board of directors of the Corporation.
"Deferred Share Unit" means a bookkeeping entry, the value of which at any particular time shall be equal to the five day average closing price of a share of the Corporation on the XXXXXXXXXX Stock Exchange immediately before the date in issue.
"Director" means a director of the Corporation.
"Executive Officer" means a bona fide full-time executive employee (including, without limitation, any director-officer) of the Corporation or a subsidiary, direct or indirect, of the Corporation, who has been designated as an Executive Officer by the Corporation.
"Member" means an individual who becomes a participant in the Plan.
"Quarterly Average Closing Price" of a Share in a quarter is the five day average closing price of a Share based on the closing price of a Share on the last five trading days of the quarter on the XXXXXXXXXX Stock Exchange.
"Senior Management Incentive Plan Payment" means the short term management incentive payment payable under the XXXXXXXXXX.
"Share" means a common share of the Corporation and such other share as is added thereto or substituted therefore as a result of amendments to the articles of the Corporation, reorganization or otherwise.
"Termination Date" with respect to a Member, means the date of the event (whether a retirement, termination or loss of employment or office, or death) causing the Member to no longer be any of a Director, Executive Officer or employee of the Corporation.
"Valuation Date" with respect to a Member, and otherwise referred to as "redemption date" in the proposed plan, means such date as elected by the Member or his or her legal representative and comprised within the period beginning one year before the Member's Termination Date and ending on XXXXXXXXXX of the first calendar year after the Member's Termination Date. The Valuation Date is the date to be used to determine the value of a Deferred Share Unit in accordance with 3(j) below and for purposes of the payments described in 3(k) below.
RELEVANT FACTS
1. The Corporation is incorporated under the laws of Canada and has its head office in XXXXXXXXXX. The Corporation is a public corporation and the principal markets for trading its Shares are the XXXXXXXXXX stock exchanges.
The Corporation deals with the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre. Its mailing address is XXXXXXXXXX.
PROPOSED PLAN
2. The Corporation is proposing to establish a new arrangement to provide an additional method for members of its Board and its Executive Officers to meet stock ownership guidelines established by the Corporation to promote a greater alignment of interests between such persons and shareholders of the Corporation. The Plan would apply in respect of service on and after XXXXXXXXXX, both by Members at that time and by individuals who become Members after that time.
3. The relevant terms of the Plan are as follows:
(a) Every person who is a Director and/or an Executive Officer on XXXXXXXXXX, may execute a prescribed form electing to become a Member as of XXXXXXXXXX. Every person who, having never held office as a Director or an Executive Officer becomes a Director or an Executive Officer after XXXXXXXXXX, may execute a prescribed form electing to be a Member effective as of the next XXXXXXXXXX which is at least 30 days after the filing of the prescribed form within the Corporation.
(b) Each year, prior to XXXXXXXXXX, Members will be permitted to elect to receive their Annual Board Retainer for the next calendar year and/or their Senior Management Incentive Plan Payment payable in the next calendar year as follows:
(i) as to XXXXXXXXXX in Deferred Share Units (hereinafter referred to as the "Elected Amount") and the balance in cash; or
(ii) XXXXXXXXXX in Deferred Share Units (hereinafter referred to as the "Elected Amount").
The Annual Board Retainer is payable quarterly in arrears on March 31, June 30, September 30 and December 31 in each fiscal year of the Corporation.
(c) An account shall be maintained by the Corporation for each Member and will be credited with notional grants of Deferred Share Units received by a Member from time to time.
(d) The number of Deferred Share Units granted at any particular time with respect to the Annual Board Retainer will be calculated by dividing one quarter of the dollar amount of the Elected Amount by the Quarterly Average Closing Price of the preceding fiscal quarter.
The number of Deferred Share Units granted during a year with respect to the Senior Management Incentive Plan Payment will be calculated by dividing the Senior Management Incentive Plan Payment payable at that time which is to be paid in Deferred Share Units by the Annual Average Closing Price of a Share for the preceding calendar year.
(e) Whenever cash dividends are paid on the Shares, additional Deferred Share Units will be credited to the Member's Deferred Share Unit account. The number of such additional Deferred Share Units will be calculated by dividing the dividends that would have been paid to such Member, if the Deferred Share Units in the Member's Deferred Share Unit account had been Shares, by the value of a Deferred Share Unit on the date on which the dividends were paid on the Shares.
(f) In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off or other distribution of Corporation assets (other than normal cash dividends) to shareholders, or any other change affecting the Shares, such proportionate adjustments, to reflect such change or changes, shall be made with respect to the number of Deferred Share Units outstanding under the Plan. However, no amount will be paid to, or in respect of, a Member under the Plan or pursuant to any other arrangement, and no Deferred Share Unit will be granted nor will any credit be made to such Member's Deferred Share Unit account under the Plan to compensate for a downward fluctuation in the price of Shares, nor would any other form of benefit be conferred upon, or in respect of a Member for such purpose.
(g) Deferred Share Units will be fully vested upon being granted and credited to a Member's account.
(h) The value of the Deferred Share Units credited to a Member's account, net of applicable withholdings, shall not be payable before the Member's Termination Date.
(i) After the Member's Termination Date, the Member (or in case of death his/her legal representative) will be permitted to elect a Valuation Date.
(j) The value of a Deferred Share Unit on a Valuation Date will be the five day average closing price of a Share on the XXXXXXXXXX Stock Exchange immediately before that date.
(k) The payment owing in respect of the Deferred Share Units (i.e. the number of units in the Member's deferred share unit account multiplied by the value of a Deferred Share Unit established on the Valuation Date) will be paid in cash, net of applicable withholdings, as soon as practicable after the election mentioned in 3(i) above, provided that in any event such payment date shall be no later than December 31 of the first calendar year after the Member's Termination Date.
(l) Deferred Share Units will not entitle a Member to any shareholder rights, including, without limitation, voting rights, dividend entitlement or rights on liquidation.
(m) The Corporation will be responsible for all costs relating to the administration of the Plan.
(n) 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 Member at the date of the amendment or termination of the Plan.
PURPOSE OF PROPOSED PLAN
4. The purpose of the proposed Plan is to provide an additional method for the members of the Board and the Executive Officers of the Corporation to meet stock ownership guidelines established by the Corporation to promote a greater alignment of interests between the Members and shareholders of the Corporation.
5. To the best of your knowledge and that of the Corporation none of the issues in respect of which rulings are herein requested are:
(a) in an earlier return of the Corporation or a related person,
(b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation,
(c) under objection by the Corporation 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 by the Directorate.
RULINGS 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 relevant terms of the proposed Plan, that the proposed Plan is established in the manner described in 2 and 3 above, we rule as follows:
A. An arrangement in writing between the Corporation and a Member 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 Income Tax Act (the "Act").
B. The Plan will not constitute a "retirement compensation arrangement" or an "employee benefit plan" as those terms are defined under subsection 248(1) of the Act.
C. 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 a Member in respect of the Plan whether by reason of the implementation of the Plan or prior to any payment to the Member.
D. No amount will be included in the income of a Member pursuant to section 5 or 6 of the Act in respect of the payment by the Corporation of the costs relating to the administration of the Plan.
E. Payments received under the Plan by a Member in accordance with 3(h) to (k) above and applicable withholdings will be included in the income of the Member pursuant to subsection 5(1), section 6 or subparagraph 115(1)(a)(i) of the Act for the year in which the payments are received. Payments received by the Member's legal representative and applicable withholdings will also be subject to tax, in the year of receipt, in accordance with the Act.
F. Subject to paragraph 18(1)(a) and section 67 of the Act, any amount referred to in ruling E above that is a cash payment made by the Corporation in a particular year under the Plan to a Member who is an employee of the Corporation or to the legal representative of a Member who is an employee of the Corporation, in accordance with 3(h) to (k) above, and any amount representing a withholding made on such payment under the Plan will be deductible for that year in accordance with section 9 of the Act.
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 is implemented within six (6) months of this letter.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
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