1999 Ruling 9925233 - EMPLOYEE BONUS 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:

1. Is the Employee Bonus Plan a Salary Deferral Arrrangement?

2. How is the income to be reported from the subsequent investment plan?

Position:

1. No
2. Section 9

Reasons:

1. Amounts paid within three years.

2. Similar to income from a derivatives product

XXXXXXXXXX
XXXXXXXXXX 992523
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX
Employee Bonus Plan and Subsequent Investment Opportunity

We are writing in response to your correspondence of XXXXXXXXXX wherein you had requested an advance income tax ruling on behalf of XXXXXXXXXX. We also acknowledge our (XXXXXXXXXX) various telephone conversations and your additional submissions in furtherance of this matter.

You have advised that, to the best of the knowledge of yourself and that of responsible officials of XXXXXXXXXX, none of the issues being considered in this advance income tax ruling request is involved in an income tax return of either of XXXXXXXXXX, is being considered by a Taxation Services Office or Taxation Centre of Canada Customs and Revenue Agency, or is the subject of an objection or appeal.

FACTS

1. XXXXXXXXXX ("ACO") is a "taxable Canadian corporation", as that term is defined in subsection 89(1) of the Income Tax Act (the "Act"), that is resident in and carries on business in Canada. The business number of ACO is XXXXXXXXXX and it is served by the XXXXXXXXXX Taxation Services Office of Canada Customs and Revenue Agency.

2. XXXXXXXXXX ("BCO") is a "taxable Canadian corporation", as that term is defined in subsection 89(1) of the Act, that is resident in and carries on business in Canada. The business number of BCO is XXXXXXXXXX and it is served by the XXXXXXXXXX Taxation Services Office of Canada Customs and Revenue Agency.

3. Each of the "Participants" is an individual resident in Canada within the meaning of the Act. Each Participant is employed in and carries out the duties of his or her employment only in Canada. Some of the Participants perform services for BCO but none are remunerated by BCO; all Participants are employees of and are remunerated by ACO. Some U.S. resident employees of certain U.S. subsidiaries of ACO will participate in a plan (the "U.S. Plan") similar to the plans described below.

4. It is currently the practice for ACO to award an annual bonus (the "Bonus") to certain key employees including Participants under various bonus plans. The amount of the Bonus for a particular fiscal year is determined after XXXXXXXXXX, the end of that fiscal year, based on an evaluation of the employee's performance for that fiscal year and the financial results achieved by ACO's business units and overall by ACO. At the end of XXXXXXXXXX in each year, ACO makes a payment to each employee who participates in the bonus plan which payment (the "XXXXXXXXXX payment") represents a portion of what is anticipated to be the Bonus for that fiscal year, although at that time neither ACO nor the employee knows the amount of the Bonus for that year. Under the terms of the Bonus plans, ACO must pay the amount of the Bonus as determined after XXXXXXXXXX, minus the amount of the XXXXXXXXXX payment, to the employee within 90 days of theXXXXXXXXXX fiscal year end; in practice, the amount of the Bonus is usually determined inXXXXXXXXXX following the end of the fiscal year and, after Board approval has been obtained, ACO usually pays the Bonus (net of the XXXXXXXXXX payment) in XXXXXXXXXX. If an employee for whom a Bonus is determined after XXXXXXXXXX ceases to be employed by ACO between XXXXXXXXXX and the time that the Bonus is paid, the employee is not entitled to receive the Bonus, other than the amount of any XXXXXXXXXX payment already received by the employee.

5.

XXXXXXXXXX

PROPOSED TRANSACTIONS

6. It is proposed that two plans (the "Plans") will be established that will provide employees who are eligible to be Participants with an opportunity to elect to have a portion of their Bonus compensation reflect gains and losses on some of the investments made by ACO and BCO. ACO and BCO refer to this investment activity as XXXXXXXXXX. There will be approximately XXXXXXXXXX Participants across Canada. The Plans will be administered by a Plan Administrator consisting of a committee of several senior executives of ACO who also participate on the investment committee that makes decisions in connection with ACO's XXXXXXXXXX activities.

7. The investments that will be relevant to the Plans are referred to as Qualifying Investments. The terms of the Plans will describe in detail the types of investments that will be Qualifying Investments, and will specify in which Investment Year such Qualifying Investments will be considered to have been made. The Plan Administrator will determine which investments made by ACO, BCO or their subsidiaries will be included as Qualifying Investments for purposes of the Plan for any particular Investment Year. Qualifying Investments will include investments made in the course of the XXXXXXXXXX activity either by ACO or BCO, or by a subsidiary of ACO where such investments are directed and administered by the XXXXXXXXXX group. For ease of reference, the term "ACO" when used below in reference to the making of, and the receipt of income on or sale proceeds of, Qualifying Investments includes any such subsidiaries of ACO that make such investments under the direction and administration of the XXXXXXXXXX group.

The Employee Bonus Plan

8. Under the first plan (the "Employee Bonus Plan"), when a Bonus (net of any XXXXXXXXXX payment) for a particular fiscal year is paid to a Participant following the end of the fiscal year, a portion of the Bonus (the "Holdback Amount") will be held back rather than being paid to the Participant. The remainder of the Bonus will be paid to the Participant as described above. Effective shortly after receipt of the rulings provided herein in respect of the fiscal year ending XXXXXXXXXX, and thereafter on or before XXXXXXXXXX and subsequent calendar years in which the Plan is made available by ACO to Participants, a Participant will choose what percentage of his or her Bonus for the fiscal year (referred to as the "Investment Year") that ends XXXXXXXXXX of that calendar year will be held back, up to a maximum dollar amount to be specified by the Participant subject to certain limits described below. The actual Holdback Amount for a particular Investment Year will not be known until the Bonuses are awarded for that year. The Participant's choice regarding the amount of his or her Holdback Amount will be irrevocable.

9. Participation in the Bonus Plan will be voluntary. There will be a minimum Holdback Amount for a Participant that will depend in part on the class (as described in paragraph 10, below) to which the Participant is assigned and in part on whether the Participant is more directly involved in investment decisions made by ACO and BCO (a "XXXXXXXXXX Participant") or not (an Other Participant). The minimum Holdback Amount will be subject to reduction as described in paragraph 11, below.

10. There will also be a maximum annual Holdback Amount for each Participant. There will be nine classes of Participants having maximum Holdback Amounts ranging from $XXXXXXXXXX to $XXXXXXXXXX. The class in which a Participant is placed for any Investment Year, and therefore his or her maximum Holdback Amount for that year, will be determined prior to the Participant choosing the maximum portion of his or her Bonus to be held back in respect of that Investment Year.

11. In addition to the foregoing maximum, the aggregate amount of Holdback Amounts for all Participants and for U.S. employees who are participating in the corresponding U.S. plan for any Investment Year will be limited to XXXXXXXXXX% of the total amount invested by ACO and BCO in Qualifying Investments in that Investment Year. To the extent that the aggregate of all Holdback Amounts would exceed this XXXXXXXXXX% limit, each Participant's Holdback Amount for that Investment Year will be reduced pro rata (without regard to the minimum described in paragraph 9, above) so that the aggregate amount of the Holdback Amounts for that Investment Year does not exceed this XXXXXXXXXX% limit.

12. If the sum of the Holdback Amounts for all Participants under the Bonus Plan for an Investment Year, together with the amounts held back in respect of participants in the U.S. Plan, is less than XXXXXXXXXX% of the aggregate amount of the Qualifying Investments for such Investment Year, then Participants who have so indicated in their election will be permitted to increase their Holdback Amounts for that Investment Year, and participants under the U.S. Plan will have a similar entitlement to increase their holdback amounts under the U.S. Plan, pro rata to the amount of their Holdback Amounts before such increase; and if, after such pro rata increases to the Holdback Amounts, the sum of the Holdback Amounts and the holdback amounts of participants under the U.S. Plan is still less than XXXXXXXXXX% of the aggregate amount invested in Qualifying Investments, then Participants who have so indicated in their elections may, at the discretion of the Plan Administrator, be permitted to increase their Holdback Amounts further, and participants under the U.S. Plan may similarly be permitted to increase their holdback amounts further. However, taking into account such additional Holdback Amounts, the sum of the Holdback Amounts for all participants under the Bonus Plan and the U.S. Plan for an Investment Year will not be allowed to exceed XXXXXXXXXX% of the aggregate amount invested in Qualifying Investments for such Investment Year.

13. ACO will maintain a separate unfunded book entry account (the "Employee Account") for each Participant for each Investment Year of participation in the Employee Bonus Plan. The percentage of the aggregate amount invested by ACO and BCO in Qualifying Investments for an Investment Year that is represented by a Participant's Holdback Amount for that Investment Year will be the Participant's "Allocation Percentage" for that Investment Year.

For example, assume that, for a particular Investment Year, a Participant elects to have 10% of his or her Bonus for that year up to a maximum of $20,000 treated as a Holdback Amount. The Participant's Bonus is determined after October 31 of that year to be $100,000. The Participant's Holdback Amount will be $10,000 for that Investment Year. Assume that in that Investment Year, ACO and BCO invest a total of $200 million in Qualifying Investments. The Participant's Allocation Percentage for that Investment Year will be 0.005% ($10,000 divided by $200 million).

14. When ACO or BCO receives amounts such as dividends or interest payments on a Qualifying Investment, each Participant's Employee Account will be credited with an amount equal to the Participant's Allocation Percentage of the net amounts received by ACO or BCO, minus XXXXXXXXXX% of such net amounts.

When ACO or BCO disposes of all or a portion of a Qualifying Investment for cash proceeds, each Participant's Employee Account will be credited with an amount equal to the Participant's Allocation Percentage of the aggregate of the net amount of cash received by ACO or BCO minus XXXXXXXXXX% of the profit or plus XXXXXXXXXX% of the loss realized by ACO or BCO on the disposition of that Qualifying Investment.

A disposition of a Qualifying Investment could occur through a sale of all or part of the Qualifying Investment. It could also occur through ACO or BCO receiving a repayment of invested capital in a Qualifying Investment or through the repayment of all or part of the principal amount of a debt that is a Qualifying Investment.

15. When ACO or BCO receives cash fees in connection with a Qualifying Investment, or when non-cash fees have been realized in cash, the Participant's Employee Account will be credited with the Participant's Allocation Percentage of XXXXXXXXXX% of the amount of such fees.

16. If a writedown in the value of a Qualifying Investment occurs for financial accounting purposes, then the Employee Account of each Participant for the relevant Investment Year will be increased by the Participant's Allocation Percentage of XXXXXXXXXX% of the writedown and the amount of such writedown will be taken into account in calculating ACO's profit or loss on any subsequent disposition of that Qualifying Investment.

17. Participants will be entitled to receive cash payments ("Cash Compensation Payments") referable to their Employee Accounts under the Employee Bonus Plan. Payments will be made at least annually and may be made on a semi-annual, quarterly or other basis as determined by the Plan Administrator from time to time. It is anticipated that, generally, Cash Compensation Payments to Participants will be made quarterly if and to the extent that amounts have accrued in the Participants' Employee Accounts as described above. The amount of a Participant's Employee Account will be reduced by the amount of any payment made to the Participant out of that Account.

18. At no time will the Participant have or be entitled to a legal or beneficial ownership interest in any Qualifying Investment. The Participants' only rights will be to receive Cash Compensation Payments from ACO computed by reference to and in accordance with the terms of the Employee Bonus Plan.

19. If an event that would trigger a credit or debit to a Participant's Employee Account in respect of a Qualifying Investment occurs in the Investment Year in which the Qualifying Investment is made, the Participant's Allocation Percentage for the Investment Year will be determined as if the event had not occurred; however, appropriate credits or debits will be then made to the Participant's Employee Account taking into account the event that has occurred.

20. The amount of any Cash Compensation Payment to which a Participant is entitled under the Plan in respect of any Investment Year will be reduced by the Participant's share of an annual "Administration Charge". With respect to an Investment Year, the Administration Charge for each calendar year will be a maximum amount of the lesser of $XXXXXXXXXX (less a pro rata amount allocated to U.S. participants under the U.S. Plan) and 1% of the total Holdback Amounts for all Participants allocated to Qualifying Investments made in the Investment Year plus non-cash proceeds, if any, of Qualifying Investments at the beginning of the particular calendar year and will be a minimum amount of the lesser of $XXXXXXXXXX and the actual administration costs of the Bonus Plan as determined by the Plan Administrator. The Administration Charge will continue to accrue until all Qualifying Investments for a particular Investment Year have been disposed of and all Cash Compensation Payments with respect to that Investment Year have been made to Participants.

21. A Participant's share of the Administration Charge relating to an Investment Year will be determined pro rata based on the amount of the Participant's Holdback Amount relative to the aggregate of the Holdback Amounts for all Participants for that Investment Year. The Administration Charge for each calendar year, and for any prior calendar years for which the Administration Charge has not been deducted from payments to Participants, will be deducted from the Participants' Employee Accounts thereby reducing the Cash Compensation Payment to be made under the Bonus Plan for the Investment Year in question. In determining the amount of the final Cash Compensation Payment to be made on the termination of the Employee Bonus Plan as described below, amounts added to a Participant's Employee Account in respect of notional dispositions of Qualifying Investments shall not be reduced by any amount in respect of the Administration Charge so that such Administration Charge will be allocated to a Participant only to the extent of amounts in the Participant's Employee Account arising in connection with actual receipts of cash by ACO or BCO.

22. At least annually, the Plan Administrator will conduct or arrange for a valuation of Qualifying Investments acquired in each Investment Year.

23. As to any Investment Year, the Employee Bonus Plan will be terminated and wound up (the "Three Year Termination") on a date (the "Three Year Termination Date") that is no later than the last day of the third calendar year following the calendar year in which the Investment Year ends. For example, for the Investment Year ending XXXXXXXXXX, the Employee Bonus Plan will be terminated and wound up on or before XXXXXXXXXX. Also, if, at any time, the aggregate fair market value of all Qualifying Investments held by ACO and BCO in respect of an Investment Year (as determined with reference to the annual valuation of all Qualifying Investments) is less than XXXXXXXXXX% of the aggregate initial investment in Qualifying Investments made in that Investment Year, the Plan Administrator may in its discretion terminate and wind up the Employee Bonus Plan in respect of that Investment Year.

24. In either such case, at the time of termination, the fair market value of the Qualifying Investments acquired in the Investment Year will be determined with reference to the annual valuation of all Qualifying Investments and a Participant will be entitled to receive a final Cash Compensation Payment of the amount in the Participant's Employee Account, computed as if all Qualifying Investments for that Investment Year had been disposed of for proceeds equal to their fair market value as so determined.

25. On the death or permanent disability of a Participant, the Participant or his or her estate will have the option of requesting that the Participant's participation in the Employee Bonus Plan be terminated in respect of all Investment Years. If such option is exercised, the fair market value of the Qualifying Investments acquired in all Investment Years with respect to which the Participant participated will be determined with reference to the annual valuation of all Qualifying Investments and the Participant or estate will be entitled to receive a final Cash Compensation Payment of the amount in the Participant's Employee Account, computed as if all Qualifying Investments for that Investment Year had been disposed of for proceeds equal to their fair market value as so determined. At its discretion, exercisable on a case by case basis, the Plan Administrator may permit a similar termination of participation in the Employee Bonus Plan for other Participants.

26. A Participant who ceases to be employed by ACO prior to the end of an Investment Year will have a nil Holdback Amount, and no amount will be added to the Participant's Employee Account, for that and subsequent Investment Years. Other than in the case of the option exercisable on death or disability, a Participant's rights to receive Cash Compensation Payments under the Employee Bonus Plan will continue after termination of employment with ACO until the termination and winding up of the Employee Bonus Plan for each Investment Year with respect to which the Participant has participated.

The Investment Plan

27. A Participant in the Employee Bonus Plan is eligible to, but is not required to, use the Participant's funds received out of and on termination of the Employee Bonus Plan to purchase an "Investment Contract" under the Investment Plan. At any time on or before the fourteenth day (the "Investment Date") following the receipt by a Participant of a final Cash Compensation Payment on the Three Year Termination of the Employee Bonus Plan for an Investment Year, the Participant may elect to purchase an Investment Contract characterized by reference to that Investment Year if Qualifying Investments acquired in that Investment Year are still held by ACO or BCO on the Investment Date. The Participant may invest in his or her Investment Contract for an Investment Year an amount (the "Investment Amount") that is no more and no less than the pre-tax amount of the final Cash Compensation Payment received by the Participant on the Three Year Termination of the Employee Bonus Plan in respect of that Investment Year.

28. A Participant may borrow money and use such borrowed money to pay all or part of the Investment Amount for an Investment Contract. The Participant may borrow from XXXXXXXXXX.

29. In addition, ACO may agree to make a loan (an "Investment Loan") to a Participant who is purchasing an Investment Contract under the Investment Plan. An Investment Loan will bear interest at normal commercial arm's length rates and at a rate that is not less than the prescribed rate under section 80.4 of the Act which interest will be required to be paid annually by the Participant. The principal amount outstanding under an Investment Loan used by a Participant to purchase an Investment Contract for a particular Investment Year will be required to be repaid by the Participant as and when the Participant receives amounts in respect of that Investment Contract.

30. An Investment Contract will relate to investments held on the Investment Date that were Qualifying Investments for the relevant Investment Year under the Employee Bonus Plan. For example, a "1999 Investment Contract" will relate to investments that were Qualifying Investments under the Employee Bonus Plan made or deemed to be made in the 1999 Investment Year and that are still held by ACO or BCO on the Investment Date for the Investment Plan commencing at or about the beginning of the year 2003. References below to Qualifying Investments refer to such remaining Qualifying Investments. The fair market value of each such Qualifying Investment will be determined as of the Three Year Termination Date for the particular Investment Year having reference to the annual valuation for that Investment Year.

31. The Investment Amount paid by a Participant for an Investment Contract divided by the aggregate fair market value of the Qualifying Investments for that Investment Year that are held by ACO or BCO on the Three Year Termination Date will be the "Specified Percentage" of the Participant under the Participant's Investment Contract for that Investment Year. In connection with an Investment Contract, ACO will maintain two separate unfunded book entry accounts (an "Income Account" and a "Principal Account") for each Participant in respect of the Participant's Specified Percentage of each Qualifying Investment for the relevant Investment Year.

32. A Participant's Specified Percentage of the fair market value as of the Investment Date of each Qualifying Investment will be recorded as the Participant's "Initial Principal Investment Amount" for that Qualifying Investment but such amount will not be added to any of the Participant's accounts.

For example, assume that a Participant is entitled to and chooses to invest in an Investment Contract in respect of a particular Investment Year an amount that is equal to 0.01% of the aggregate fair market value of the Qualifying Investments for that Investment Year that are still held by ACO on the Three Year Termination Date. The Participant's Investment Contract would reflect a Specified Percentage of 0.01%. A separate Income Account and Principal Account would be maintained reflecting the Participant's notional interest in respect of 0.01% of each Qualifying Investment for that Investment Year. An amount equal to 0.01% of the fair market value of each Qualifying Investment would be recorded as the Initial Principal Investment Amount for that Qualifying Investment (but this amount would not be added to any of the Participant's accounts).

33. When ACO or BCO receives cash amounts such as dividends or interest payments on a Qualifying Investment, each Participant's Income Account for that Qualifying Investment will be credited with an amount equal to the Participant's Specified Percentage of XXXXXXXXXX% of the net amounts received by ACO or BCO. Where such amounts are received by ACO or BCO in kind rather than in cash, the amounts will not be credited to the Participants' Income Accounts until such amounts have been realized in cash by ACO or BCO.

34. When ACO or BCO disposes of all or a portion of a Qualifying Investment for cash proceeds, each Participant's Principal Account for that Qualifying Investment will be credited with an amount equal to the Participant's Specified Percentage of the aggregate of the net amount of cash received by ACO or BCO minus XXXXXXXXXX% of the profit or plus XXXXXXXXXX% of the loss realized by ACO or BCO on the disposition of that Qualifying Investment.

When ACO or BCO receives payment in kind rather than in cash upon the disposition of all or a portion of a Qualifying Investment, no amount will be added to the Participants' Principal Accounts until such consideration has been realized in cash, at which time amounts will be credited to the Participants' Principal Accounts in the same manner as on the disposition of a Qualifying Investment for cash proceeds.

35. When ACO or BCO receives cash fees in connection with a Qualifying Investment, and when non-cash fees have been realized in cash, the Participant's Income Account for that Qualifying Investment will be credited with the Participant's Specified Percentage of XXXXXXXXXX% of the amount of such fees.

36. If there is a writedown in the value of a Qualifying Investment that represents a situation in which, if section 50 of the Act were applicable to ACO and ACO were to make the election referred to in that section, ACO would be deemed to have disposed of the Qualifying Investment for proceeds equal to nil (a "Writedown"), then the Principal Account of each Participant for that Qualifying Investment will be increased by the Participant's Specified Percentage of XXXXXXXXXX% of the amount of the Writedown, and the amount of such Writedown will be taken into account in calculating ACO's profit or loss for purposes of this Plan on any subsequent disposition of that Qualifying Investment.

Upon such Writedown, a Participant's Initial Principal Investment Amount in respect of that Qualifying Investment (or the remaining portion of the Initial Principal Investment Amount if a partial disposition has occurred before that time with respect to such Qualifying Investment) will be reduced to zero.

37. Participants will be entitled to receive cash payments referable to the aggregate of the amounts in their Income Accounts and Principal Accounts for a particular Investment Year under the Investment Plan after the recording of the additions and reductions described above. Payments to Participants will be made at least annually, and may be made on a semi-annual, quarterly or other basis as determined by the Plan Administrator from time to time. It is anticipated that, generally, payments to Participants will be made quarterly if and to the extent that amounts have accrued in the Participants' Income Accounts and Principal Accounts as described above.

38. Payments to Participants that reflect amounts in their Income Accounts will be designated as "Income Payments". The amount of any Income Payment from an Income Account for a Qualifying Investment will reduce the balance in the Income Account for that Qualifying Investment. Payments to Participants that reflect amounts in their Principal Accounts will be designated as "Principal Payments". The amount of any Principal Payment from a Principal Account for a Qualifying Investment will reduce the balance in the Principal Account for that Qualifying Investment.

39. The amount of Income Payments or Principal Payments to which a Participant is entitled under the Investment Plan in respect of any Investment Year will be reduced by the Participant's share of an annual "Administration Charge". With respect to an Investment Year, the maximum amount of the Administration Charge will be the lesser of $XXXXXXXXXX (less a pro rata amount allocated to U.S. participants under the U.S. Plan) and 1% of the total Investment Amounts invested by all Participants plus non-cash proceeds, if any, of Qualifying Investments at the beginning of the particular calendar year, and a minimum amount equal to the lesser of $XXXXXXXXXX and the actual administration costs of the Plan as determined by the Plan Administrator. The Administration Charge will continue to accrue until the earlier of (i) the date that the Investment Plan for that Investment Year has been terminated as described below, and (ii) the date on which all Qualifying Investments for a particular Investment Year have been disposed of and all payments with respect to that Investment Year have been made to Participants.

40. The Participant's share of the Administration Charge relating to an Investment Year will be determined pro rata based on the Participant's Investment Amount relative to the aggregate of the Investment Amounts of all Participants in respect of that Investment Year. The Administration Charge for each calendar year, and for any prior calendar years for which the Administration Charge has not been deducted from payments to Participants, will reduce Participants' Income Accounts or one or more Principal Accounts, as determined by the Plan Administrator, for that Investment Year so that it will be deducted from the payments that Participants would otherwise receive relating to the Investment Year.

41. At no time will the Participant have or be entitled to a legal or beneficial ownership interest in any Qualifying Investment. The Participants' only rights will be to receive Income Payments and Principal Payments from ACO computed by reference to and in accordance with the terms of the Investment Plan.

42. It is anticipated that the aggregate amount of Income Payments and Principal Payments in excess of Initial Principal Investment Amounts received by a Participant under an Investment Contract for an Investment Year will exceed the amount of any interest payable by the Participant on borrowed money used by the Participant to acquire that Investment Contract.

43. The terms of the Investment Plan will provide that Income Payments in respect of a Qualifying Investment will be treated by ACO and the Participant as income received by the Participant from ACO. The terms of the Investment Plan will also provide that Principal Payments in respect of a Qualifying Investment will be treated, in part, as a return of the Participant's Initial Principal Investment Amount in respect of that Qualifying Investment and in part as income received by the Participant from ACO, in the appropriate proportions reflecting the portion of the particular Qualifying Investment that has been disposed of by ACO or BCO.

For example, if one-third of a particular Qualifying Investment has been disposed of, the related Principal Payment to a Participant will be treated firstly as a return of one-third of the Participant's Initial Principal Investment Amount in respect of that Qualifying Investment and the remainder as income received by the Participant from ACO.

Any amount paid to a Participant out of a Participant's Principal Account for a Qualifying Investment that is referable to a writedown of that Qualifying Investment will be treated as a return of a portion of the Participant's Initial Principal Investment Amount for that Qualifying Investment.

44. In the event that the aggregate amount of Principal Payments to which a Participant is entitled with respect to a particular Qualifying Investment is less than the Initial Principal Investment Amount for that Qualifying Investment, the Participant will, to that extent, not receive a return of the Initial Principal Investment Amount for that Qualifying Investment and will therefore realize a loss of part or all of his or her Initial Principal Investment Amount for that Qualifying Investment.

45. At the end of the tenth calendar year following the Investment Year in respect of which a Participant purchases an Investment Contract, any remaining amount in the Participant's Income Accounts and Principal Accounts for that Investment Year (after increases or decreases as described below), will be paid by ACO to the Participant and the Investment Plan in respect of the relevant Investment Year will be terminated and wound up. Also, after the seventh fiscal year of ACO following an Investment Year, the Plan Administrator may, at its discretion, pay out the Investment Contracts for all but not less than all Participants for that Investment Year and the Investment Plan in respect of that Investment Year will be terminated and wound up.

In addition, if at any time during the term of the Investment Plan, the aggregate fair market value of Qualifying Investments held by ACO and BCO in respect of an Investment Year (as determined by the Plan Administrator with reference to the most recent valuation of all Qualifying Investments) is less than XXXXXXXXXX% of the aggregate initial investment in Qualifying Investments for that Investment Year, the Plan Administrator may, in its discretion, terminate and wind up the Investment Plan in respect of that Investment Year.

46. In either such case, immediately preceding such termination, the fair market value of any Qualifying Investments still owned by ACO or BCO that were made or deemed to be made in the Investment Year will be determined with reference to the annual valuation of all Qualifying Investments, and a Participant will be entitled to receive from ACO a final Income Payment and a final Principal Payment of the amounts in each of the Participant's Income Accounts and Principal Accounts for that Investment Year computed as if all Qualifying Investments for that Investment Year had been disposed of for proceeds equal to their fair market value as so determined.

47. On the death or permanent disability of a Participant, the Participant or his or her estate will have the option of requesting that the Participant's Investment Contracts in respect of all Investment Years be paid out. If such option is exercised, the fair market value of the Qualifying Investments still held by ACO or by BCO that were acquired in all Investment Years with respect to which the Participant acquired Investment Contracts will be determined with reference to the annual valuation of all Qualifying Investments, and the Participant or estate will be entitled to receive payment of final Income Payments and final Principal Payments out of the amounts in the Participant's Income Accounts and Principal Accounts for all Investment Years computed as if all such Qualifying Investments had been disposed of for proceeds equal to the fair market value thereof as so determined. At its discretion, exercisable on a case by case basis, the administrator of the Investment Plan may permit a similar termination of participation in the Investment Plan for other Participants.

48. Other than in the case of the option exercisable on death or disability, a Participant's rights to receive amounts under the Investment Plan will continue after termination of employment with ACO until the termination and winding up of the Investment Plan for each Investment Year with respect to which the Participant purchased an Investment Contract.

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the Employee Bonus Plan is to provide an incentive to Participants in connection with the investing activities of ACO and BCO by arranging for a portion of each Participant's Bonus to reflect the risks and benefits of such investment activities. The purpose of the Investment Plan is to provide Participants with the option of continuing to share in such risks and benefits over a longer term. In particular, the Employee Bonus Plan and the Investment Plan are intended to encourage Participants to seek out and refer investment opportunities to ACO and BCO, and to encourage improvements in the management of Qualifying Investments by Participants who are engaged in the investment activity of ACO and BCO.

Rulings Provided

Provided that the above statements of fact are complete and accurate and that the proposed transactions are undertaken as described, the following rulings are provided:

A. The Employee Bonus Plan will not be considered to be a "salary deferral arrangement", as that term is defined in subsection 248(1) of the Act.

B. The amount, with respect to the Employee Bonus Plan, to be included in the income of a Participant for a taxation year as income from an office or employment will consist of the aggregate of the following amounts:

i. pursuant to subsection 5(1) of the Act, the amount of the Bonus paid by ACO to the Participant in that taxation year as described in paragraph 4 of the Facts and paragraph 8 of the Proposed Transactions;

ii. pursuant to subsection 5(1) of the Act, the amount of any Cash Compensation Payment paid to a Participant in that taxation year as described in paragraph 17 of the Proposed Transactions; and

iii. pursuant to subsection 5(1) of the Act, the amount of a final Cash Compensation Payment paid to a Participant in that taxation year as described in paragraphs 24 and 25 of the Proposed Transactions.

C. Subject to paragraph 18(1)(a) and section 67 of the Act, an amount referred to in ruling "B", above, that is paid to a Participant in a particular taxation year of ACO will be deductible by ACO pursuant to section 9 of the Act in computing its income for that taxation year to the extent that such payment is made after 180 days following the end of the taxation year of ACO to which the Bonus relates.

D. The amount, with respect to the Investment Plan, to be included in the income of a Participant for a taxation year as income from a business or property as contemplated by subsection 9(1) of the Act will consist of the aggregate of the following amounts:

i. the amount of any Income Payment, as that term is described in paragraphs 37 and 38 of the Proposed Transactions, paid to the Participant in that taxation year;

ii. the amount of any final Income Payment, as described in paragraphs 46 and 47 of the Proposed Transactions, paid to the Participant in that taxation year;

iii. the amount of any Principal Payment, as described in paragraphs 37 and 38 of the Proposed Transactions, paid to a Participant, in that taxation year to the extent that such Principal Payment exceeds

1. in the case of a disposition of all of a Qualifying Investment, the Initial Principal Investment Amount of the Participant in respect of that Qualifying Investment; or,

2. in the case of a partial disposition of a Qualifying Investment, the appropriate portion of the Initial Principal Investment Amount of the Participant applicable to that partial disposition of the Qualifying Investment; and

iv. the amount of any final Principal Payment, as described in paragraphs 46 and 47 of the Proposed Transactions, to the extent that such final Principal Payment exceeds the Initial Principal Investment Amount of the Participant in respect of a Qualifying Investment or, in the case of the disposition of the remaining portion of a Qualifying Investment, the appropriate portion of the Initial Principal Investment Amount of the Participant applicable to that remaining portion.

E. Subject to paragraph 18(1)(a) and section 67 of the Act, an amount referred to in ruling "D", above, that is paid to a Participant in a particular taxation year of ACO will be deductible by ACO pursuant to section 9 of the Act in computing its income for that taxation year.

F. Following a Writedown of a Qualifying Investment by ACO, as described in paragraph 36 of the Proposed Transactions, at the time that ACO makes a payment to a Participant of any remaining amount in the Participant's Principal Account in respect of that Qualifying Investment, a Participant will be considered to have disposed of the Initial Principal Investment Amount for that Qualifying Investment (or the remaining portion of the Initial Principal Investment Amount if there has been a prior partial disposition of that Qualifying Investment before that time) and the Participant will, for the purpose of computing the income of the Participant for the taxation year that includes the year of the payment, be considered to have incurred a loss from carrying on a business or from property as contemplated by subsection 9(2) of the Act equal to the amount by which the Initial Principal Investment Amount (or the remaining portion thereof if a partial disposition of that Qualifying Investment has occurred before that time) exceeds the amount received by the Participant from the Principal Account of that Participant for that Qualifying Investment in connection with such Writedown.

G. Upon either

i. the disposition by ACO of all or of a portion of a Qualifying Investment (or the last portion of a Qualifying Investment if there has been a prior partial disposition) and the payment to a Participant of all amounts in the Principal Account of that Participant to which the Participant is entitled in respect of that Qualifying Investment or portion thereof, or

ii. the termination of the Investment Plan for a particular Investment Year and the payment by ACO to a Participant of all amounts in the Principal Accounts of that Participant to which the Participant is entitled to in respect of a Qualifying Investments for that Investment Year,

to the extent that the Initial Principal Investment Amount for that Qualifying Investment, or in the case of a partial disposition of the Qualifying Investment, the appropriate portion of the Initial Principal Investment Account applicable to that partial disposition, exceeds the total of the Principal Payments received by the Participant in respect of that Qualifying Investment, or such portion thereof in the case of a partial disposition, from the time that the Participant acquired the Investment Contract in respect of that Investment Year up to and including the particular time, will, for the purposes of computing the income of the Participant for the taxation which includes the particular time, be considered to be a loss of the Participant from a business or property as contemplated by subsection 9(2) of the Act.

H. For the purposes of section 7000 of the Income Tax Regulations, no amount will be considered to accrue as interest on an Investment Contract, as described in paragraph 27 of the Proposed Transactions, and accordingly, no amount will be required to be included in the income of a Participant pursuant to subsection 12(4) of the Act in respect of that Investment Contract.

I. No amount received from a Participant in the Investment Plan with respect to the purchase of an Investment Contract, as that term is defined in paragraph 27 of the Proposed Transactions, will be required to be included in the income of either ACO or BCO.

J. Provided that a Participant has a legal obligation to pay interest on borrowed money used to acquire an Investment Contract, within the meaning of that term in paragraph 27 of the Proposed Transactions, and provided that the Investment Contract continues to be held for the purpose of gaining or producing income (other than income which would be exempt), the Participant will be entitled to deduct, in computing the income of the Participant for a taxation year, the lesser of the interest paid or payable in respect of that taxation year or a reasonable amount in respect thereof pursuant to paragraph 20(1)(c) of the Act.

These rulings are provided subject to the limitations and qualifications set out in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996 and are binding upon the Agency provided that the proposed transactions are completed on or before XXXXXXXXXX. These rulings are based on the Act and the Income Tax Regulations in their present form and do not take into account the effects of any proposed amendments thereto.

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

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