1999 Ruling 9922463 - 6801(D), 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 a portion of its executive compensation in the form of deferred share units constitute an SDA for purposes of the Act?

Position: No.

Reasons: Exempted under the provisions of paragraph 6801(d) of the Regulations.

XXXXXXXXXX 						992246

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Company") (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

1. The Company is a resident of Canada and has a XXXXXXXXXX year end. It is a "public corporation" and a "taxable Canadian corporation" as those terms are defined in subsection 89(1) of the Income Tax Act (Canada) (the "Act").

The Company files its tax returns with the XXXXXXXXXX Tax Centre and is located within the area served by the XXXXXXXXXX Tax Services Office.

2. XXXXXXXXXX ("Parent"), through a subsidiary wholly-owned corporation, owns XXXXXXXXXX% of the outstanding common shares of the Company. The expression "subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1) of the Act.

3. XXXXXXXXXX.

4. A trend among leading public companies is to pay a portion of each executive's compensation based on the value of the common shares of the company thereby rewarding the executives for the creation of shareholder value and instilling a proprietary interest in the company. In response to that trend, the Company is contemplating the establishment of a compensation plan that tracks to the value of the shares of the Company.

Proposed Transactions

5. The Company will establish "XXXXXXXXXX" (the "Plan") for the benefit of its key employees (the "Participants"). The Plan will be effective on XXXXXXXXXX. The principal features of the Plan will be as follows:

(a) The Plan will be administered by the XXXXXXXXXX ("Board") generally responsible for compensation related matters (the "Committee"). A notional account will be established for each Participant in the Plan in order to carry out the objectives of the Plan, more particularly described below.

(b) Each Participant will be allocated XXXXXXXXXX Units ("XXXXXXXXXX"), more particularly described below, representing common shares of the Company. In addition, each Participant will elect to receive a percentage or the total of his or her annual cash bonus amount payable under the XXXXXXXXXX Plan ( see 6(a) and 7(d) below) in the form of XXXXXXXXXX. The Company's matching contribution under the Employee Savings Plan (see 6(d)and 7(e) below) and Excess Pension Contributions" (see 7(f) below) will also be paid in the form of XXXXXXXXXX.

(c) The plan shall be unfunded until payment of the XXXXXXXXXX as set out in paragraphs 7(b), (g) and (h) below.

6. Certain terms are defined in the Plan as follows:

(a) "XXXXXXXXXX Plan" means the Company's program under which annual cash bonuses may be awarded.

(b) "Cessation of Employment" means any cessation of the employer/employee relationship between the Company and the Participant, including termination of employment by the employer (whether or not for cause), voluntary resignation, retirement from active employment, total and permanent disability, death, or termination of employment for any other reason including a termination of employment within ninety (90) days following a change in control of the Company. However, a leave of absence of any Participant approved by the Company for such purpose or a transfer of a Participant to the Parent or to a subsidiary of the Parent (or from such subsidiary of the Parent to another such subsidiary) approved by the Company for such purpose shall not be considered a Cessation of Employment.

(c) "Corporate Performance Factor", means the performance factor (ranging between 0 and 2) related to corporate performance as defined in the XXXXXXXXXX Plan.

(d) "Employee Savings Plan", means the program established by the Company effective XXXXXXXXXX, under which employees of the Company may contribute a percentage of their employment income to buy shares of the Company whereunder the Company matches XXXXXXXXXX% of the employees contributions.

(e) "Market Value", as of a particular date, means the higher of the closing prices for a common share of the Company on the XXXXXXXXXX Stock Exchanges, on that date.

(f) "Pension Plan" means the defined contribution portion of the Parent's Pension Plan (XXXXXXXXXX) for employees of the Company, effective XXXXXXXXXX, under which the Company makes contributions on behalf of its employees, the amount of which shall not exceed the limit set out in the definition of "money purchase limit" in subsection 147.1(1) of the Act.

(g) "XXXXXXXXXX Ownership Level" means for a Participant the number of shares and/or XXXXXXXXXX calculated and revised on XXXXXXXXX of every second year by the Board (first calculation to be made on XXXXXXXXXX) (the "Calculation Date") and initially set at the following level:

(i) XXXXXXXXXX;

(ii) XXXXXXXXXX;

(iii) XXXXXXXXXX;

(iv) XXXXXXXXXX; and

(v) Other employees - to be determined by the Board at such time such employees are designated by the Board as Participants in the Plan.

Where Base Salary is the annualized salary of the Participant as at the Calculation Date and Market Value is determined as at the Calculation Date.

7. Pursuant to the Plan, the Committee will determine, subject to Board approval, the number of XXXXXXXXXX to be granted to each Participant, to the nearest whole number, using the following formula:

(a) the number of XXXXXXXXXX credited to a Participant's account with respect to any year shall be determined by dividing:

(i) the amount determined as the product of the bonus amount payable in respect of the calendar year preceding the date of grant under the XXXXXXXXXX Plan and a factor, which should not be below 0, determined as the Corporate Performance Factor minus 1; by

(ii) the average of the closing prices of a common share of the Company on the XXXXXXXXXX Stock Exchanges over the last XXXXXXXXXX trading days of the calendar year ending before the date of grant.

Grants will be made annually at the same time as annual bonuses are paid under the XXXXXXXXXX Plan (the "Grant Date"). However, the Committee may make such grants, subject to Board approval, at different intervals in circumstances which the Committee considers appropriate.

(b) XXXXXXXXXX granted pursuant to the Plan are either XXXXXXXXXX Share Units ("XXXXXXXXXX") or XXXXXXXXXX Share Units ("XXXXXXXXXX"), depending on whether the XXXXXXXXXX Ownership Level for the Participant is met as at XXXXXXXXXX of the calendar year preceding the Grant Date.

Every XXXXXXXXXX granted to a Participant shall be a XXXXXXXXXX if, as at XXXXXXXXXX of the calendar year preceding the Grant Date, the aggregate number of XXXXXXXXXX recorded in the Participant's account and the common shares then held by the Participant is less than the XXXXXXXXXX Ownership Level of the Participant then in effect.

If as at XXXXXXXXXX of the calendar year preceding the Grant Date, the XXXXXXXXXX Ownership Level is reached or exceeded, the Participant will have the choice to receive XXXXXXXXXX% of the number of XXXXXXXXXX granted, in cash or in XXXXXXXXXX, or in any combination thereof. The balance of XXXXXXXXXX will be granted as XXXXXXXXXX.

The cash value of a XXXXXXXXXX will be based on the average of the closing prices of a common share on the XXXXXXXXXX Stock Exchanges over the last XXXXXXXXXX trading days of the calendar year ending before the Grant Date less applicable withholding taxes and source deductions.

In the event the XXXXXXXXXX Ownership Level is reached or exceeded, unless an irrevocable election to receive XXXXXXXXXX is made by written notice to the Company's Secretary prior to XXXXXXXXXX of the calendar year preceding the Grant Date, the Participant will receive a cash payment representing XXXXXXXXXX% of the XXXXXXXXXX granted, subject to applicable withholding taxes and other source deductions. As noted above, the remaining XXXXXXXXXX% will be granted as XXXXXXXXXX.

(c ) A Participant's account will be credited with additional XXXXXXXXXX computed by formula when dividends are declared and paid on the Company's common shares, excluding stock dividends, but including dividends which may be paid in cash or in common shares at the option of the shareholder.

Each additional XXXXXXXXXX so credited will be allocated on a pro-rata basis between vested XXXXXXXXXX and XXXXXXXXXX depending on the number of XXXXXXXXXX and XXXXXXXXXX recorded in the Participant's account on the payment date of such dividend.

(d) A Participant may also elect to receive a percentage or the total of his/her bonus amount under the XXXXXXXXXX Plan in the form of XXXXXXXXXX . In such case, the number of XXXXXXXXXX will be determined to the nearest whole number by dividing (i) the bonus amount elected to be received in XXXXXXXXXX by (ii) the average closing prices of a XXXXXXXXXX common share on the XXXXXXXXXX Stock Exchanges over the last XXXXXXXXXX trading days of the calendar year ending before the Grant Date.

Unless an irrevocable election to receive XXXXXXXXXX is made by written notice to the Company's Secretary prior to XXXXXXXXXX of the calendar year preceding the Grant Date, the Participant will receive a cash payment, subject to applicable withholding taxes and other source deductions, under the XXXXXXXXXX Plan.

(e) A Participant who contributed to the Employee Savings Plan during any part of the preceding calendar year, shall be granted at the beginning of each calendar year, in the form of XXXXXXXXXX , the corporation's matching contribution computed as XXXXXXXXXX % of the number of shares purchased with the participant's own contribution under the Employee Savings Plan in the preceding calendar year, rounded to the nearest whole number.

(f) If the Company's contributions to its Pension Plan (see 6(f) above) in respect of a Participant in a given calendar year are limited because of the definition of "money purchase limit" in subsection 147.1(1) of the Act, the amount of pension contributions that the Company cannot contribute because of the money purchase limit ("Excess Pension Contributions") shall be granted to the Participant in the form of XXXXXXXXXX . The number of XXXXXXXXXX shall be determined, at the beginning of each calendar year and rounded to the nearest whole number, by dividing (a) the Excess Pension Contributions during the preceding calendar year by (b) the average of the closing prices of a common share of the Company on the XXXXXXXXXX Stock Exchanges over the last XXXXXXXXXX trading days of the calendar year ending before the Grant Date.

(g) XXXXXXXXXX recorded in the Participant's account as of the date of Cessation of Employment will be redeemed for cash less applicable withholding taxes and other source deductions, within three months of the Participant's Cessation of Employment.

(h) XXXXXXXXXX recorded in the Participant's account as of the date of Cessation of Employment will be redeemed for cash less applicable withholding taxes and other source deductions:

(i) within three months of the date of death, retirement or total and permanent disability of the Participant without any vesting restrictions;

(ii) within three months of the date of the Participant's Cessation of Employment, if the Participant's employment is terminated without cause, subject to the following vesting schedule:

Completed Years Since Grant		     % Vested (Cumulative)
			1				 XXXXXXXXXX %
			2				 XXXXXXXXXX %
					3				 XXXXXXXXXX %
					4				XXXXXXXXXX %

The Committee may permit, in the context of the negotiations surrounding a termination of employment from the Company, the redemption for cash of XXXXXXXXXX even though the right to redeem them has not vested as of the date of Cessation of Employment. XXXXXXXXXX are forfeited under all other circumstances.

(i) The cash value of XXXXXXXXXX for purposes of redemption as described in paragraphs 7(g) and (h) above, will be based on the average of the closing prices of a common share of the Company on the XXXXXXXXXX Exchanges over the last XXXXXXXXXX trading days preceding Cessation of Employment.

8. The Company's Board of Directors may amend, suspend or terminate the Plan in whole or in part at any time, provided no such amendment, suspension or termination shall impair the rights of any Participant accrued at the time of such amendment, suspension or termination without the consent of the Participant.

Purpose of the Proposed Transactions

9. The purpose of the proposed transactions is to provide key employees of the Company with a long-term compensation plan that tracks to the value of the Company's common shares.

Additional Information

10. To the best of your knowledge and the knowledge of the Company, none of the issues involved in this request for an advance income tax ruling:

(a) is in an earlier return of the Company or of a person related to the Company;

(b) is being considered by a tax services office or tax centre in connection with a previously filed return of the Company or of a person related to the Company;

(c) is under objection by the Company or by a person related to the Company;

(d) is before the courts; or

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

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the terms of the Plan are as described in paragraphs 5 to 7 above, we rule as follows:

A. The Plan will not constitute an "employee benefit plan", as that term is defined in subsection 248(1) of the Act.

B. The Plan will not constitute a "retirement compensation arrangement", as that term is defined in subsection 248(1) of the Act.

C. Except for those amounts identified in Rulings D and E below, 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 Participant in respect of the Plan.

D. The amount to be included in the income of a resident Participant under the Plan for the year when cash is received under the Plan in satisfaction of the resident Participant's XXXXXXXXXX will consist of the aggregate of the following amounts:

(a) under paragraph 6(1)(a) of the Act, the amount paid by the Company to the Participant in order to satisfy the Participant's XXXXXXXXXX as described in paragraphs 7(b), (g) and (h) above; and

(b) under paragraph 6(1)(a) of the Act, the amount of applicable withholdings withheld by the Company as described in paragraphs 7(b), (g) and (h) above.

E. The amount to be included in the income of a non-resident Participant under the Plan for the year when cash is received under the plan in satisfaction of the non-resident Participant's XXXXXXXXXX will consist of the aggregate of the following amounts:

(a) under paragraph 6(1)(a) and subparagraph 115(1)(a)(i ) of the Act, the amount, to the extent it is attributable to services rendered in Canada, paid by the Company to the Participant in order to satisfy the Participant's XXXXXXXXXX as described in paragraphs 7(b), (g), and (h) above; and

(b) under paragraph 6(1)(a) and subparagraph 115(1)(a)(i ) of the Act, the amount, to the extent it is attributable to services rendered in Canada, of applicable withholdings withheld by the Company as described in paragraphs 7(b), (g) and (h) above.

F. 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 "salary deferral arrangement" in subsection 248(1) of the Act.

G. The amount payable by the Company to the estate of a Participant as a result of the death of the Participant will constitute a right or thing held by the deceased Participant at the time of death for purposes of subsection 70(2) of the Act.

H. Subject to paragraph 18(1)(a) and section 67 of the Act, any amounts referred to in rulings D, E and G above that are paid by the Company in a particular year in respect of Participants, will be deductible by the Company in accordance with section 9 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 within six months of the date of this letter.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate