1999 Ruling 9926113 - DEFERRED STOCK 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: Whether deferred stock unit plan is a prescribed plan under paragraph 6801(d) of the Income Tax Regulations

Position: Yes

Reasons: The plan meets the requirements of paragraph 6801(d)

XXXXXXXXXX
XXXXXXXXXX 	992611
		XXXXXXXXXX
Attention:  XXXXXXXXXX 

XXXXXXXXXX, 1999

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
XXXXXXXXXX
Deferred Stock Unit Plan For Key Employees

This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling with regard to the above taxpayer. A copy of the proposed Plan was submitted with your requests.

DEFINITIONS

For the purposes of the request for an advance income tax ruling, the relevant definitions are the following:

(a) "Act" shall mean the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1. as amended to the date hereof.

(b) "Agreement" shall mean the written agreement, as it may be amended from time to time, entered into by the Company and an Employee pursuant to the Plan.

(c) "Beneficiary" shall mean an individual who, on the date of a Participant's death, is a dependent or relation of the Participant who has been designated in accordance with the Plan and the laws applying to the Plan, or where no such individual has been validly designated by the Participant, or where the individual does not survive the Participant, the Participant's legal representative.

(d) "Board" shall mean the board of directors of the Company.

(e) "Broker" shall mean a broker who is independent from the Company and who is a member of the stock exchange which is relevant for determining the value of the DSUs. The Broker will be designated by the Participant, and any such determination may be changed from time to time.

(f) "Committee" shall mean the committee of the Board which may from time to time be appointed by the Board to, inter alia, interpret and administer the Plan.

(g) "Company" shall mean XXXXXXXXXX and any successor corporation, whether by amalgamation, merger or otherwise.

(h) "Deferred Stock Unit" ("DSU") shall mean a unit credited by means of a bookkeeping entry on the books of the Company to a Participant pursuant to the Plan, the value of which on any particular date shall, subject to 23 below, be equal to the weighted average closing price of a Share on the XXXXXXXXXX Stock Exchange (the "XXXXXXXXXX"), or if the Shares are not listed on the XXXXXXXXXX, on such other stock exchange in Canada on which the Shares are listed, or if the Shares are not listed on any stock exchange, then on the over-the-counter market, on the five trading days prior to that date on which at least one board lot of the Shares was traded.

(i) "Deferred Stock Unit Account" ("DSU Account") shall mean an account, maintained by the Company for each Participant, which will be credited with the DSUs granted to a Participant from time to time under the Plan.

(j) "Effective Date" shall mean the date of this ruling.

(k) "Employee" (or "Employees" when applicable) shall mean an employee of the Company or of a Related Company.

(l) "Employer" shall mean, with respect to a Participant, whichever of the Company or a Related Company that employs the Participant or that last employed the Participant prior to his Termination Date.

(m) "Entitlement Date" shall mean the day which is 30 days after a Participant's Termination Date, subject to 16 and 22 below.

(n) "Participant" (or "Participants" when applicable) shall mean an Employee who has been granted Deferred Stock Units in accordance with the Plan, and whose entitlement under the Plan has not been paid out.

(o) "Plan" shall mean the Deferred Stock Unit Plan for Employees of XXXXXXXXXX as amended from time to time.

(p) "Related Company" shall mean a corporation that is related to the Company for the purposes of the Act.

(q) "Share" (or "Shares" when applicable) shall mean a common share of the Company or such shares of the Company or of a Related Company substituted therefor pursuant to 8 below.

(r) "Termination Date" shall mean the date on which a Participant ceases, for any reason, to be an employee of the Company, or of an "affiliate" of the Company as the term "affiliate" is defined in paragraph 3 of the Canada Customs and Revenue Agency's Interpretation Bulletin IT-337R3 dated January 30, 1998.

(s) "Vested Deferred Stock Units" ("Vested DSUs") shall mean all DSUs recorded in a Participant's DSU Account which are not forfeited by the Participant on his Termination Date, together with any additional DSUs credited to such Participant's DSU Account under 7 and 16 below after such Participant's Termination Date.

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

FACTS

1. The Company is incorporated under the laws of Canada. It is a "public corporation" and a "taxable Canadian corporation" as those terms are defined in subsection 89(1) of the Act. The shares of the Company are principally traded on the XXXXXXXXXX Stock Exchange. The Company has a fiscal year-end of XXXXXXXXXX.

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

3. The Company files its tax returns at the XXXXXXXXXX Tax Centre, and is served by the XXXXXXXXXX Tax Services Office.

4. The Company is a XXXXXXXXXX.

PROPOSED PLAN

5. The Committee shall from time to time grant DSUs to such Employees as the Committee determines have demonstrated a capacity for contributing in a substantial measure to the achievement of the goals of the Company or a Related Company in order to recognize the past contributions of such individuals to the Company or a Related Company in their capacity as employees of the Company or such Related Company and/or to motivate them to contribute to the future growth of the Company and/or its Related Companies.

6. Where the Committee elects to grant DSUs to an Employee, such Employee shall enter into an Agreement with the Company, which shall comply with and be consistent with the terms of the Plan with respect to such grant of DSUs and such grant shall be effective on the effective date of such Agreement.

7. A Participant's DSU Account shall from time to time, until the Participant's Entitlement Date, be credited with additional DSUs, the number of which shall be equal to the quotient determined by dividing: one hundred percent (100%) of the dividends declared and that would have been paid to the Participant if the DSUs in his or her DSU Account on the relevant record date for dividends on the Shares had been Shares (excluding stock dividends but including dividends which may be paid in cash or shares at the option of the shareholder) by the value of a DSU on the payment date of such dividends, with fractions computed to three decimal places.

8. In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off or other distribution (other than normal cash dividends) of Company assets to shareholders, or any other change affecting the Shares, such proportionate adjustments, if any, as the Board in its discretion may deem appropriate to reflect such a change, shall be made with respect to the number of DSUs outstanding under the Plan, provided that the dollar value of the DSUs credited to a Participant's DSU Account immediately after such an adjustment shall not exceed the dollar value of the DSUs credited to such Participant's DSU Account immediately prior thereto, and provided further that the value of DSUs shall always depend on the value of Shares.

9. Except with respect to DSUs granted as at the Effective Date, DSUs granted to a Participant under the Plan shall vest with respect to such Participant in accordance with the following schedule:

Vesting Date
Percentage of DSUs Vesting on Vesting Date

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

10. With respect to DSUs granted to a Participant as at the Effective Date, such DSUs granted shall vest with respect to such Participant in accordance with the following schedule:

Vesting Date
Percentage of DSUs Vesting on Vesting Date

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

11. Subject to 13 below, a Participant shall forfeit all of his right, title and interest with respect to any such DSUs that do not vest in accordance with 9 and 10 above.

12. Subject to 13 below, a Participant shall also forfeit all of his right, title and interest with respect to additional DSUs credited to his DSU Account by virtue of 7 above to the extent that they are directly or indirectly attributable, as determined by the Committee, to DSUs forfeited by such Participant.

13. All DSUs recorded in a Participant's DSU Account shall vest immediately and shall not be considered forfeited upon the Participant's retirement or long-term disability as determined by the Committee, upon certain events (defined as a "Change in Control" in the Plan), upon the Participant's death or upon the termination of the Plan.

14. On a Participant's Entitlement Date, the value of the Vested DSUs credited to the Participant's DSU Account shall be redeemable by and payable to the Participant or the Participant's Beneficiary, as applicable. Subject to 18, 19 and 21 below, the value of the Vested DSUs redeemed by or in respect of a Participant shall, after deduction of any applicable taxes and other source deductions required to be withheld, be used to purchase on behalf of the Participant or the Participant's Beneficiary, as applicable, Shares on the open market in accordance with the provisions of the Plan.

15. No amount will be paid and no other benefit will be granted to, or in respect of, a Participant under the Plan or pursuant to any other arrangement, in order to compensate for a downward fluctuation in the value of the Shares.

16. In the event that a Participant's Entitlement Date would otherwise fall between the record date for a dividend on the Shares and the related dividend payment date, the Entitlement Date shall be the day immediately following the date of payment of such dividend for purposes of recording in the DSU Account of the Participant amounts referred to in 7 above, and for purposes of 14 above. In the event the Company is unable, by a Participant's Entitlement Date, to compute the final value of the Vested DSUs recorded in such Participant's DSU Account by reason of the fact that any data required in order to compute the value of a Share has not been made available to the Company, then the Entitlement Date shall be the next following trading day on which such data is made available to the Company.

17. Notwithstanding any other provision of the Plan, all amounts payable to, or in respect of a Participant shall be paid on or before December 31 of the calendar year commencing immediately after the Participant's Termination Date.

18. Subject to 22 below, prior to 11:00 a.m. on the Entitlement Date or, where the Entitlement Date is not a trading day for Shares on the stock exchange which is relevant for determining the value of the Vested DSUs, on the next such trading day, the Company shall notify the Broker as to the number of Shares to be purchased by the Broker on behalf of the Participant on the open market, using the cash value of the redeemed Vested DSUs after deduction of applicable taxes and other source deductions. As soon as practicable thereafter, the Broker shall purchase on the open market the number of Shares which the company has requested the Broker to purchase and notify the Participant, or the Participant's Beneficiary, as applicable, and the Company of: a) the aggregate purchase price of the Shares (the "Aggregate Purchase Price"), b) the purchase price per Share or, if the Shares were purchased at different prices, the average purchase price (computed on a weighted average basis) per Share, c) the amount of any related reasonable brokerage commission, and d) the settlement date for the purchase of the Shares. On the settlement date in respect of the Shares purchased under the Plan, upon payment of the Aggregate Purchase Price and related reasonable brokerage commission by the Employer, the Broker shall, in accordance with the instructions of the Participant or the Participant's Beneficiary, as applicable, deliver to the Participant or to his Beneficiary or to a representative of the Participant or his Beneficiary a certificate representing such Shares, or credit such Shares to an account with the Broker in the name of the Participant or the Participant's Beneficiary, as applicable.

19. If, after the Broker applies the value of the Participant's Vested DSUs, net of applicable withholdings, to the purchase of whole Shares as provided under the Plan, an amount remains payable under the Plan in respect of the Participant, the Employer shall pay such amount in cash, net of applicable withholdings, to the Participant or the Participant's Beneficiary, as applicable.

20. The Company shall have the right, in its sole discretion, to pay or cause a Participant's Employer to pay the value, as computed under the Plan, of such Participant's Vested DSU entitlement to such Participant or his Beneficiary, as applicable in a lump sum cash payment, less any applicable withholdings and shall be fully discharged in so doing.

21. Subject to 22 below, purchases of Shares pursuant to the Plan shall be made on the open market by a Broker. Upon designation of a Broker or at any time thereafter, the Company may elect to provide the designated Broker with a letter agreement to be executed by the Broker and entered into with the Participant and to which the Company would also be a party, setting forth, inter alia, (i) the Broker's concurrence to being so designated, and agreement to act for the Participant's account in accordance with customary usage of the trade with a view to obtaining the best share price for the Participant and to settle the purchase by delivering a share certificate for the Shares purchased or by crediting such Shares to an account in the name of the Participant or the Participant's Beneficiary in accordance with the instructions of the Participant or the Participant's Beneficiary, as applicable, upon payment by the Employer of the purchase price and related reasonable brokerage commission, and (ii) the Company's agreement to notify the Broker of the number of Shares to be purchased and to pay or cause the Participant's Employer to pay the purchase price and the related reasonable brokerage commission on behalf of the Participant or the Participant's Beneficiary, as applicable, provided however that no terms of said letter agreement shall have the effect of making the Broker or deeming the Broker to be an affiliate of (or not independent from) the Company for purposes of any applicable corporate, securities or stock exchange requirement.

22. Notwithstanding any other provision of the Plan, if in the opinion of the Company a Participant is in possession of material undisclosed information regarding either or both of the Company and the Shares on his Entitlement Date such Participant's Entitlement Date shall be postponed, and no Shares shall be purchased on behalf of such Participant until such time as, in the opinion of the Company, such Participant is not in possession of material undisclosed information regarding the Company or the Shares. A Participant's Entitlement Date shall be postponed until the earlier of the date on which, in the opinion of the Company, the Participant ceases to have material undisclosed information regarding the Company and the Shares and the date on which the Company elects to exercise its discretion to pay or cause the Participant's Employer to pay the value of the Participant's Vested DSUs in cash; provided that the Company shall be deemed to have elected to exercise such discretion on the day that is five business days prior to December 31 of the calendar year commencing immediately after the Participant's Termination Date and shall pay or cause the Participant's Employer to pay the value of the Vested DSUs credited to the Participant's DSU Account, computed as at the date of such deemed election, to the Participant or his Beneficiary, as applicable, in a lump sum cash payment, less applicable withholdings, on or before December 31 of such calendar year.

23. In the event that, at the time contemplated for the purchase of Shares under the Plan, there is no public market for the Shares, the obligations of the Company under the Plan shall be met by a payment in cash in such amount as is reasonably determined by Committee to be equitable in the circumstances based on the value of the Shares at the time of payment, less applicable withholdings, such determination to be final and binding for all purposes.

24. The Plan shall be an unfunded obligation of the Company.

25. The Plan may be amended or terminated at any time in whole or in part by the Board provided that no such amendment or termination shall adversely affect the rights of a Participant under the Plan that are in existence on the date of the amendment or termination.

PURPOSE OF THE PROPOSED PLAN

26. The purpose of the Plan is to encourage the achievement of the Company's goals by Employees and to promote a greater alignment of interests between Participants and the shareholders of the Company.

ADDITIONAL INFORMATION

To the best of your knowledge and that of the Company, none of the issues involved in this ruling request are:

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

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

c) the subject matter of any notice of objection filed pursuant to the Act by the Company or a related person,

d) before the courts, or if a judgment 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 this 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 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" not a "retirement compensation arrangement" as those terms are defined in subsection 248(1) of the Act.

B. An arrangement in writing between the Company and an Employee 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 amount 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 a Participant and no amount will be included in the income of a Beneficiary in respect of the Plan by reason of the implementation and operation of the Plan.

D. Amounts received under the Plan by or on behalf of a Participant who is resident in Canada, plus related withholdings and brokerage fees, will be included in the Participant's income pursuant to subsection 5(1) or section 6 of the Act. Amounts received under the Plan by or on behalf of a Participant who is not resident in Canada, plus related withholdings and brokerage fees, will be included in the Participant's income pursuant to paragraph 115(1)(a)(i) of the Act, to the extent that such amounts are attributable to services rendered in Canada. If a Participant dies before receiving any amount payable to him under the Plan, the amount payable to the Participant's Beneficiary 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 Employer of a Participant in a particular year will be deductible by the Employer 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 the Canada Customs and Revenue Agency (the "CCRA"), and are binding on the CCRA provided the proposed Plan is implemented on or before XXXXXXXXXX. However, these rulings will be binding only in respect of the Plan as described and may not be binding in the event the Plan is amended or terminated as provided for in 25 above.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate