1999 Ruling 9929053 - DEFERRED SHARE UNIT PLAN

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Does the proposed plan satisfy regulation 6801(d)?

Position: Yes

Reasons:

Meets 6801(d).

XXXXXXXXXX
XXXXXXXXXX 						992905
								XXXXXXXXXX
Attention:  XXXXXXXXXX 

XXXXXXXXXX, 1999

Dear Sirs:

Re: Deferred Stock Unit Plan (the "Plan")
Advance Income Tax Ruling

This is in reply to your letters of XXXXXXXXXX, in which you requested an advance income tax ruling in respect to the above noted Plan.

Definitions and Abbreviations

In this letter, the following terms have the meanings specified:

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

(b) "Board" means the board of directors of the Employer;

(c) "Business Day" means a day during which the branch offices of the Employer are open for business in XXXXXXXXXX;

(d) "Committee" means the Human Resources Committee of the Board of the Employer;

(e) "Deadline" means XXXXXXXXXX of the first calendar year commencing after the year in which a Participant ceases to be a Director (and is not otherwise an employee of the Employer) or ceases to be an employee of the Employer (and is not a Director) as the case may be;

(f) "Deferred Participant's Remuneration" means any percentage, as elected under section 3 of the DSUP, of the Participants Remuneration;

(g) "Director" means a member of the Board;

(h) "DSUP" means the Director and Senior Executive Deferred Stock Unit Plan which is the subject of this ruling;

(i) "Election Notice" means the Notice in the form of Schedule A to the DSUP by which a Director or an Executive elects to become a Participant;

(j) "Employer" means: XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX;

(k) "Executive" means a senior executive who is a member of the Management Committee of the Employer and is employed by the Employer;

(l) "Participant" means a Director or Executive who is resident in Canada and has elected pursuant to the DSUP to participate in the DSUP;

(m) "Participant's Remuneration" means with respect to Directors, annual fees payable in respect of serving in such capacity, including retainers, meeting attendance fees and supplemental fees for committee chairmanships and, with respect to Executives, annual corporate bonuses, which are based partly on the Executive's as well as the Employer's performance;

(n) "Redemption Date" means the date determined in accordance with clause XXXXXXXXXX of the DSUP on which Units may be redeemed in accordance with the DSUP;

(o) "Redemption Notice" means the Notice in the form of Schedule B to the DSUP by which a Participant, a beneficiary or a legal representative of the estate of a Participant elects to redeem Units in accordance with the DSUP;

(p) "Shares" means the common shares of the Employer;

(q) "Unit" means a unit created under the terms of the DSUP;

(r) "Value of a Unit" means at any particular date:

(i) for the purpose of granting Units pursuant to clauses XXXXXXXXXX of the DSUP, the market value of a Share at that particular date, being the arithmetic average of the weighted average trading prices of the Shares on the XXXXXXXXXX Stock Exchange for the five (5) trading days immediately preceding such date, subject to adjustments made pursuant to clause XXXXXXXXXX of the DSUP; or

(ii) for the purpose of redeeming Units pursuant to clause XXXXXXXXXX of the DSUP, the market value of a Share at that particular date, being the arithmetic average of the closing prices of the Shares on the XXXXXXXXXX Stock Exchange on the last trading day preceding such date during which at least one Share has been traded on both exchanges;

(s) "Year end" means: XXXXXXXXXX.

Facts

1. The Employer is incorporated under the laws of Canada. The Employer is a "public corporation", and a "taxable Canadian corporation" as defined in subsection 89(1) of the Act.

2. A certain portion of the compensation paid to Executives each year is dependent on the Employer achieving certain qualitative and quantitative goals and the Executive's individual performance measured against individual objectives established at the beginning of the Employer's fiscal year. Achievement of these goals is rewarded through a bonus which is included in the Executive's income from employment. The bonus for a given fiscal year of the Employer is generally paid in December or January of the following fiscal year after the Board approves the financial statements of the Employer for a fiscal year.

Proposed Plan

3. The Employer proposes to establish the "DSUP" for Directors and Executives. For Directors the Plan begins with respect to Deferred Participant's Remuneration that would but for the DSUP, be paid after the Employer's 1st fiscal quarter of XXXXXXXXXX (i.e., after XXXXXXXXXX). For Executives, the Plan begins with respect to Deferred Participant's Remuneration that would but for the DSUP, be paid after such date as is determined by the Committee but not before the date of this letter. The principal features of the DSUP are described below. A copy of the proposed plan and related documents were provided with your submission.

4. The DSUP will be administered by the Committee and the costs related to the implementation and administration of the DSUP will be paid by the Employer (clause XXXXXXXXXX of the DSUP).

5. The participation of a Director or Executive in the DSUP will be voluntary (clause XXXXXXXXXX of the DSUP).

6. Each Participant will be given the right to elect in respect of each fiscal year of the Employer whether to participate in the DSUP. Each Participant will have to determine in his election the percentage of the Participant's Remuneration that the Participant wishes to have converted into Units of the DSUP. In the case of a Director, the election will be made in respect of the Participant's Remuneration that will otherwise be payable in the Employer's fiscal year following the election. In the case of an Executive, the election will be made in respect of the Participant's Remuneration that will otherwise be payable in connection with the Employer's fiscal year during which the Election Notice is filed.

7. Except as noted in the following sentence, the election referred to in paragraph 6 above shall be made by a Director by filing an Election Notice at least 30 days before the commencement of the Employer's fiscal year in respect of which the Deferred Participant's Remuneration would otherwise be payable. With respect to the Employer's XXXXXXXXXX fiscal year, each Director will be required to file an Election Notice at least 30 days before the commencement of the Employers 2nd fiscal quarter of XXXXXXXXXX (i.e., on or beforeXXXXXXXXXX) (clause XXXXXXXXXX of the DSUP).

8. The election referred to in paragraph 6 above shall be made by an Executive by filing an Election Notice at least 30 days before the commencement of the Employer's fiscal year in which the Deferred Participant's Remuneration is paid.

XXXXXXXXXX

9. The following rules will apply with regard to Units granted to a Participant:

a) The number of Units that can be allocated to a Participant will be based on the Deferred Participant's Remuneration divided by the Value of a Unit (clauses XXXXXXXXXX of the DSUP).

b) Units will be credited to a notional account established for each Participant on the basis of the amount of Deferred Participant's Remuneration payable to such a Participant (clauses XXXXXXXXXX of the DSUP).

c) Additional Units will be credited to a Participant's account when dividends are paid on the Shares based on the Value of a Unit at the date dividends are paid (clauseXXXXXXXXXX of the DSUP).

d) No amount will be paid to, or in respect of, a Participant under the DSUP, or pursuant to any other arrangement, and no Unit will be granted or credited to a Participant's account under the DSUP to compensate for a downward fluctuation in the price of Shares, nor will any other form of benefit be conferred upon, or in respect of, a Participant for such purposes.

e) Subject to d) above, upon the happening of the events described in f) below and more fully described in clause XXXXXXXXXX of the DSUP, the Committee will make such adjustments as it considers necessary in its discretion, with regard to the number of outstanding Units of the DSUP in order to reflect the impact of such events.

f) For the purpose of e) above the events are:

1. a stock dividend;

2. a stock split;

3. a combination or exchange of Shares;

4. a merger, consolidation, spin-off or other distribution of the Employer's assets to shareholders other than by normal cash dividends;

5. any other change affecting the Shares, including a conversion thereof into shares of another entity upon an amalgamation or a reorganization.

10. Redemption of Units

a) Units will be redeemable upon the death of a Participant, the retirement from, or the loss of, an office or employment of a Participant (clause XXXXXXXXXX of the DSUP).

b) A Participant (or in the case of death, the Participant's representative) will have to specify in the Redemption Notice the Redemption Date and the portion (if any) of the aggregate Value of the Units to be redeemed, in the form of cash, Shares or a combination thereof (clause XXXXXXXXXX of the DSUP).

c) The payments to be made following the redemption by the Participant of the Units shall, in no event, be later than December 31 of the first calendar year commencing after the year of the Participant's death, retirement from, or loss of , office of employment as the case may be (clauses XXXXXXXXXX of the DSUP).

d) Should a Participant elect to receive a portion of the aggregate Value of the Units in the form of Shares, the Employer shall, within 10 business days of the Redemption Date, advise a broker of the number of Shares that are to be purchased by the broker on the open market on the Participant's behalf. This number will be equal to the nearest whole number of Shares, rounded down, that can be purchased with the portion of the aggregate Value of the Units (net of withholding taxes) that the Participant has elected to receive in the form of Shares. As soon as practicable after receiving notice from the Employer, the broker will purchase, on the Participant's behalf, the required number of Shares. The broker will deliver the Shares to the Participant or, in the event of death, to his or her estate or designated beneficiary. Within 10 business days of the Redemption Date, the Employer will make a cash payment to the Participant equivalent to:

i) an amount equal to the Value of a Unit on the Redemption Date, of any entitlement to a fractional Share; and

ii) the portion of the aggregate Value of Units that he has elected to receive in cash.

e) The Employer will pay all costs related to the acquisition of the Shares, on the Participant's behalf, and the applicable brokerage fees.

f) If a Redemption Notice has not been filed before the Deadline, the Redemption Notice shall be deemed to have been filed on the Deadline specifying December 15 of the same year as the Redemption Date and requesting payment in cash. In such cases the amount payable under the DSUP will be paid in cash no later than December 31 of the same year (clause XXXXXXXXXX of the DSUP).

11. A Redemption Notice shall apply to all Units held by a Participant or the Participant's beneficiary or legal representaitive, as the case may be, at the time it is filed. Redemption of only a portion of the Units is not allowed.

12. The DSUP may be amended or terminated at any time by the Board, provided that any such amendment or termination does not in any way infringe upon the rights then accrued to Particpants thereunder.

Purpose of the Proposed Transaction

13. The purpose of the proposed transactions is to:

a) enable the Employer in securing and retaining Directors and Executives;

b) provide compensation opportunities that are competitive and compatible with shareholders' interest; and

c) encourage equity ownership in the Employer.

Additional Information

14. To the best of your knowledge, none of the issues involved in this ruling:

i) are in an earlier return of the Employer or a person related to the Employer;

ii) are being considered by a tax services office or tax centre in connection with a previously filed tax return of the Employer or a person related to the Employer;

iii) are under objection by the Employer or a person related to the Employer;

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

v) are the subject of a ruling previously issued by the Directorate.

Rulings

Provided the above statement of facts and proposed plan are accurate and constitute a complete disclosure of all relevant facts and provided the plan is established as proposed, we rule as follows:

A. An arrangement in writing between the Employer and a Participant under the terms of the DSUP 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, and as such no amount will have to be included in the income of the Participants under subsection 6(11) and subparagraph 6(1)(a)(v) of the Act.

B. The DSUP 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. Except as provided in Rulings D below, no amount will be included pursuant to subsection 5(1), section 6 or paragraph 56(1)(a) of the Act in the income of a Participant in respect of the DSUP whether by reason of the implementation of the Plan or prior to any payment to the Participant or a Participant's representative, as the case may be.

D. The amount to be included in the income of a Participant for a year under the DSUP will consist of the aggregate of the following amounts:

(a) under paragraph 6(1)(c) of the Act, the amount paid by the Employer in the year to the Participant in cash as described in subparagraph 10. d) ii) above;

(b) under paragraph 6(1)(c) of the Act, the amount paid by the Employer in the year to the Participant which relate to any entitlement to a fractional Share as described in subparagraph 10. d) i) above;

(c) under paragraph 6(1)(c) of the Act, the amount paid by the Employer in the year to a broker (excluding brokerage fees) to acquire the Shares distributed to the Participant as described in paragraph 10.d) above;

(d) under paragraph 6(1)(c) of the Act, the amount of any applicable withholdings withheld by the Corporation in the year as described in subparagraph 3 of schedule A of the DSUP; and

(e) under paragraph 6(1)(a) of the Act, the amount of brokerage fees paid by the Corporation in the year for the acquisition of the common shares distributed to the Participant by the broker as described in subparagraph 10. e) above;

E. Payments received by beneficiaries or legal representatives of the Participant as a result of the Participant's death equivalent to amounts referred to in ruling D above will be subject to tax in the year of receipt in accordance with the Act and will constitute a "right or thing" for the purpose of subsection 70(2) of the Act.

F. No amount will be included in the income of a Participant pursuant to section 5 or 6 of the Act in respect of the payment by the Employer of the costs relating to the implementation or administration of the DSUP.

G. Subject to paragraph 18(1)(a) and section 67 of the Act, any amount referred to in ruling D or E above made by the Corporation in a particular year that satisfied any portion of a Participant's or Participant's legal representative's entitlement under the Plan, and any amount representing a withholding made on such payment under the DSUP (as described in subparagraph 3 of schedule A of the DSUP) will be deductible for that year in accordance with section 9 of the Act.

These 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 Revenue Canada provided the DSUP is implemented by XXXXXXXXXX. However these rulings will be binding only in respect of the DSUP as described and may not be binding in the event the Plan is amended as provided for in paragraph 12 above.

Yours truly,

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