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.
Principal Issues: (1) Where an eligible entity is controlled by a public parent corporation, which executive remuneration is used in determining Variables C and D in clause (i)(B) of the description of B in paragraph (b) of the definition “executive compensation repayment amount” in subsection 125.7(1) of the Act? (2) In paragraph (b) of the definition “executive remuneration” in subsection 125.7(1) of the Act, what constitutes a “similar disclosure”?
Position: (1) In a situation where an eligible entity is controlled by a public parent corporation, the executive remuneration of the public parent corporation is used. (2) A similar disclosure contains information similar to the Statement of Executive Compensation for Named Executive Officers.
Reasons: (1) The law. (2) Previous published positions.
XXXXXXXXXX
2021-091340
Matthew Ross, CPA, CA
May 26, 2022
Dear XXXXXXXXXX:
Re: Determining the Executive Compensation Repayment Amount
We are writing in response to your question regarding the wage subsidy provided under subsection 125.7(2) of the Income Tax Act (Canada) (“the Act”) and, in particular, the determination of an eligible entity’s “executive compensation repayment amount” (“ECRA”) as that term is defined in subsection 125.7(1) of the Act.
You have provided the following situation:
- Cansub is a Canadian corporation that is wholly-owned by a foreign corporation, Forco.
- Shares of the capital stock of Forco are traded on a stock exchange.
- Cansub is an “eligible entity” as that term is defined in subsection 125.7(1) of the Act.
- Cansub applied for and received the wage subsidy in respect of the seventeenth “qualifying period” as that term is defined in subsection 125.7(1) of the Act.
- Forco did not apply for the wage subsidy for any qualifying periods.
You have asked how the ECRA is determined and, specifically, whose “executive remuneration” is used in making that determination. These terms are defined in subsection 125.7(1) of the Act.
You have also asked whether a disclosure required under the laws of Forco’s jurisdiction would be considered a similar disclosure for the purposes of the definition of executive remuneration if it reports only the compensation of the single highest-paid employee.
Our Comments
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.
Subsection 125.7(14) of the Act imposes a requirement on certain eligible entities to repay all or a portion of the wage subsidy provided under subsection 125.7(2) of the Act they received in respect of active eligible employees for the seventeenth qualifying period to the twenty-third qualifying period if certain conditions are met. (footnote 1) The amount of the repayment is determined by the ECRA for an eligible entity.
Paragraph (a) of the ECRA definition in subsection 125.7(1) of the Act provides that, in order for an eligible entity to have an ECRA, its shares must be listed or traded on a stock exchange or other public market or it must be controlled by a corporation the shares of which are listed or traded on a stock exchange or other public market.
Paragraph (b) of the ECRA definition in subsection 125.7(1) of the Act provides the calculation of the ECRA for a particular eligible entity as the formula A x B.
Variable A provides the allocation of the ECRA to each member of a group that is defined in clause (i)(A) of the description of Variable A for the seventeenth qualifying period to the twenty-third qualifying period. (footnote 2) Variable B determines the total amount that must be repaid by that group.
For the seventeenth qualifying period to the twenty-third qualifying period, Variable B is determined as the lesser of two amounts. (footnote 3) The first (in clause (i)(A) of the description of Variable B) is the total of all amounts of the wage subsidy received for employees who were not on leave with pay by each of the eligible entities that are described in clause (i)(A) of the description of Variable A. The second amount (in clause (i)(B) of the description of Variable B) is determined by the formula C – D, where
C is the executive remuneration of the eligible entity, or of the public parent corporation that controls the eligible entity, if any, for the 2021 calendar year (prorated based upon the number of days of the eligible entity’s, or the public parent corporation’s, fiscal periods in the calendar year, if those fiscal periods are not the calendar year), and
D is the executive remuneration of the eligible entity, or of the public parent corporation that controls the eligible entity, if any, for the 2019 calendar year (prorated based upon the number of days of the eligible entity’s, or the public parent corporation’s, fiscal periods in the calendar year, if those fiscal periods are not the calendar year).
A “public parent corporation” is described in subclause (i)(A)(II) of the description of Variable A as an eligible entity, shares of the capital stock of which are listed or traded on a stock exchange or other public market, that controls the eligible entity. There is no requirement that the entity receive the wage subsidy in order to be described as a public parent corporation. In the situation presented, Cansub is the eligible entity and Forco is its public parent corporation.
“Executive remuneration” of an eligible entity is defined in subsection 125.7(1) of the Act to mean,
(a) the total amount of compensation that is reported in the eligible entity’s Statement of Executive Compensation for Named Executive Officers pursuant to National Instrument 51-102 Continuous Disclosure Obligations, as amended from time to time, of the Canadian Securities Administrators in respect of Named Executive Officers of the eligible entity;
(b) if paragraph (a) does not apply and the eligible entity is required to make a similar disclosure to shareholders under the laws of another jurisdiction, the amount of total compensation reported in that disclosure (if the compensation of more than five individuals is required to be reported under that disclosure, using the five most highly compensated of those individuals); and
(c) if paragraphs (a) and (b) do not apply, the amount that would be required to be reported by the eligible entity using the methodology for preparing the Statement of Executive Compensation referred to in paragraph (a).
The Statement of Executive Compensation for Named Executive Officers pursuant to National Instrument 51-102 Continuous Disclosure Obligations (“Statement of Executive Compensation”) reports the total amount of compensation for the five “named executive officers” of an entity including any of its subsidiaries. It is our understanding that this is generally the total compensation for the Chief Executive Officer, Chief Financial Officer and three other most highly compensated executives of the entity including any of its subsidiaries.
If the entity is not required to file the Statement of Executive Compensation but has a similar disclosure obligation to shareholders under the laws of another jurisdiction, the amount reflected in that disclosure is to be used (limited to the five most highly compensated individuals, if the compensation of more than five individuals is required to be reported under that disclosure). If the entity is under no such disclosure obligation, the amount that would be required to be reported by the entity if it were required to file the Statement of Executive Compensation is to be used.
In our view, where there is a public parent corporation, it is the executive remuneration reported by the public parent corporation for the 2021 calendar year and the 2019 calendar year that is used in determining Variables C and D, respectively, for the seventeenth qualifying period to the twenty-third qualifying period. (footnote 4) In the situation presented, therefore, Cansub will determine Variables C and D using the executive remuneration reported by Forco.
To be considered a “similar disclosure” for the purposes of the definition of executive remuneration, it is our view that a disclosure should contain information similar to the Statement of Executive Compensation. This requires that the disclosure define total compensation in a manner and breadth that is similar to that used for the Statement of Executive Compensation. It also requires that the disclosure report the compensation for a similar number of senior executives. Accordingly, in our view, generally, a similar disclosure would report total compensation for at least five of the company’s executive officers.
In the situation presented, the laws of Forco’s jurisdiction require a disclosure that reports the compensation of only the single highest-paid employee. In our view, such a disclosure would not be a similar disclosure for the purposes of the definition of executive remuneration under subsection 125.7(1) of the Act. Therefore, as required by paragraph (c) of that definition, Forco must determine the amount that would be required to be reported using the methodology for preparing the Statement of Executive Compensation.
We trust our comments will be of assistance.
Yours truly,
Amanda Couvrette CPA, CA
Manager
Business Income and Capital Transactions
Income Tax Rulings Directorate
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained
in the original document are shown below instead:
1 Subsection 125.7(14.1) of the Act imposes a similar requirement in respect of the wage subsidy received in respect of any of the twenty-fourth qualifying period and any subsequent qualifying period.
2 For the twenty-fourth qualifying period and any subsequent qualifying period, the group is defined in clause (i.1)(A) of the description of Variable A in paragraph (b) of the ECRA definition in subsection 125.7(1) of the Act.
3 For the twenty-fourth qualifying period and any subsequent qualifying period, Variable B is determined in subparagraph (ii) of the description of Variable B in paragraph (b) of the ECRA definition in subsection 125.7(1) of the Act.
4 For the twenty-fourth qualifying period and any subsequent qualifying period, the ECRA is determined using the executive remuneration reported by the public parent corporation for the 2022 calendar year and the 2019 calendar year.
UNCLASSIFIED
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