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 proposed deferred stock unit plan meets the requirements of paragraph 6801(d) of the Regulations?
Position: Yes
Reasons: All the requirements of the Regulation have been met
XXXXXXXXXX
XXXXXXXXXX 2000-001525
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear XXXXXXXXXX:
Re: XXXXXXXXXX (the "Plan")
This is in reply to your letter of XXXXXXXXXX in which you ask for an advance income tax ruling on behalf of the above taxpayer. A copy of the proposed Plan was submitted with your request.
DEFINITIONS
For purposes of this letter, the relevant definitions are the following:
(a) "Board" means the board of directors of the Company.
(b) "Company" means XXXXXXXXXX and any successor corporation whether by amalgamation, merger or otherwise.
(c) "Committee" means the Management Resources and Compensation Committee of the Board.
(d) "Deferred Stock Unit" means a bookkeeping entry, the value of which at any particular time shall be equal to the five day average closing price of a Share on the XXXXXXXXXX Stock Exchange on the date immediately prior to the date in issue.
(e) "Deferred Stock Unit Account" means an account maintained by the Company for each Member in which notional grants of Deferred Stock Units are credited.
(f) "Employee" means an employee of the Company or any corporation affiliated with the Company through more than fifty percent ownership of its outstanding voting securities.
(g) "Member" means an individual who becomes a participant in the Plan in accordance with the terms of the Plan.
(h) "Share" means a common share or variable voting share of the Company.
(i) "Trading Day" means any date on which the XXXXXXXXXX Stock Exchange is open for the trading of shares.
Our understanding of the facts and proposed Plan is as follows:
FACTS
1. The Company is incorporated under the laws of Canada and has its head office in
XXXXXXXXXX.
2. The mailing address of Company is:
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
The tax account number of the Company is XXXXXXXXXX. The Company files its tax returns at the XXXXXXXXXX Tax Centre, and is served by the XXXXXXXXXX Tax Services Office.
PROPOSED PLAN
3. The Company is proposing to establish (after receipt of a favourable advance income tax ruling) the Plan to provide benefits to Employees. The Company and the Employees will enter into a written agreement in respect of the Plan. The proposed Plan will be as set out in 4 through 16 below.
4. Employees of the Company designated by the Committee of the Board will be, from time to time, granted a specified number of Deferred Stock Units on terms, including regarding vesting, as specified by the Committee at the time of grant.
5. An Employee will be credited with additional Deferred Stock Units whenever cash dividends are paid on Company Shares. The number of additional Deferred Stock Units credited to an Employee in connection with the payment of dividends on the Company Shares will be based on the actual amount of dividends that would have been paid to such Employee if he/she had held actual Shares rather than Deferred Stock Units and on the notional value of the Deferred Stock Units as at the date on which dividends are declared on the Shares.
6. 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 the Company's assets to shareholders, or any other change affecting the Shares, subject to 14 below, such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change, shall be made with respect to the number of Deferred Stock Units outstanding under the Plan.
7. Deferred Stock Units will not be payable until after an Employee's retirement or death.
8. The value of Deferred Stock Units, net of applicable withholdings, shall be payable after the earlier of (i) the Employee's death and (ii) the effective date of their retirement.
9. An Employee who retires from the Company may elect to have the value of their vested Deferred Stock Units become payable on any date that is on or after the date of such election, but in no event later than 15 days prior to the end of a one year period commencing at the Employee's retirement.
10. Where an Employee has died at a time when they have vested Deferred Stock Units and no election described in 9 above has been made, the legal representative of such Employee may elect to have the value of that Employee's Deferred Stock Units become payable on any date that is after the date of such election, but in no event later than 15 days prior to the end of the one year period commencing at the earlier of the date of the Employee's death and retirement.
11. In the event a retiring Employee, or the legal representative of a deceased Employee, does not make an election as described in 9 or 10 above, the value of their vested Deferred Stock Units, net of applicable withholdings, will become payable on the date which is 15 days prior to the end of the one year period commencing on the earlier of the effective date of the Employee's retirement and death.
12. For the purposes of determining how much is payable to an Employee or his legal representative in accordance with the Plan, the vested Deferred Stock Units will be valued by multiplying the average prices of a Share on XXXXXXXXXX Stock Exchange on the five consecutive trading days ending with the trading day immediately prior to the date the Deferred Stock Units become payable. The value of an Employee's vested Deferred Stock Units will be paid to the Employee or their legal representative, net of applicable withholdings, in a single cash lump sum payment within 15 days of the date such amount becomes payable.
13. Any unvested Deferred Stock Units will be forfeited at the earlier of the date of the Employee's retirement and death.
14. No amount will be paid to, or in respect of, an Employee under the Plan, or pursuant to any other arrangement, 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, an Employee for such purpose.
15. The terms of the Plan will provide that the Board can unilaterally amend or terminate the Plan at any time except with respect to rights that have accrued to an Employee at the date of the amendment or termination. Notwithstanding the foregoing, any amendment or termination of the Plan shall be such that the Plan continuously meets the requirements of paragraph 6801(d) of the Income Tax Regulations, or any successor provision thereto.
16. The Company will be responsible for all costs relating to the administration of the Plan.
PURPOSE OF PROPOSED PLAN
17. The purpose of the proposed Plan is to enhance the Company's ability to attract and retain talented individuals to serve as senior management of the Company and to promote a greater alignment of interests between such individuals and the shareholders of the Company.
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 a tax services office or tax centre in connection with a previously filed tax return of the Company or a related person;
(c) under objection by the Company or a related person;
(d) before the courts; or
(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. Except for ruling E and F, no amount will be included for the purposes of the Income Tax Act (the "Act") in the income of an Employee in respect of the Plan by reason only of the implementation and operation of the Plan.
B. 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" as contained in subsection 248(1) of the Act.
C. The Plan will be neither an "employee benefit plan" nor a "retirement compensation arrangement" as those terms are defined in subsection 248(1) of the Act.
D. No amount will be included for the purposes of the Act in the income of an Employee in respect of the payment by the Company of the costs relating to the administration of the Plan.
E. A payment received under the Plan by an Employee, including applicable withholdings, will be included in income of the Employee under section 5, section 6 or section 115(1)(a)(i) of the Act in the year it is received.
F. An amount receivable by the Employee under the Plan at the time of the Employee's death will constitute a right or thing for the purposes of subsection 70(2) of the Act.
G. Subject to paragraph 18(1)(a) and section 67 of the Act, an amount paid by the employer of an Employee under the Plan will be deductible by the employer in calculating its income in respect of the year in which the amount is paid 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 70-7R3 dated December 30, 1996, issued by the CCRA, and are binding on the CCRA provided the proposed Plan is implemented on or before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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