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 Plan a prescribed plan or arrangement as set out in paragraph 6801(d) of the Regulations?
2. Can we rule where directors' fees have accrued prior to the date of the ruling?
Position:
1. Yes.
2. Yes.
Reasons:
1. All of the requirements of the paragraph have been met.
2. The Plan and election to participate are subject to receipt of a positive ruling (a condition precedent), and are therefore not in effect until after the date of the ruling. Directors' fees that have accrued prior to the date of the ruling are not payable until after the date of the ruling. The amounts have not been "deferred" as of the date of the ruling, and would not otherwise be a salary deferral arrangement on that date.
XXXXXXXXXX 2001-007158
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: XXXXXXXXXX, Deferred Stock Unit Plan
This is in reply to your facsimile 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) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1. as amended to the date hereof.
(b) "Beneficiary" means a dependant or relation of the Participant who will acquire the Participant's rights under the Plan after the death of the Participant.
(c) "Committee" means the Corporate Governance Committee of the board of directors of the Company.
(d) "Company" means XXXXXXXXXX.
(e) "Director" means a member of the board of directors of the Company, who is not also a member of management (i.e., not otherwise employed at the Company).
(f) "Participant" means a Director who participates in the Plan.
(g) "Plan" means the proposed Directors' Deferred Stock Unit Plan that is the subject of this advance income tax ruling.
(h) "Redemption Notice" means a written notice to redeem all or part of a Participants Units, signed by the Participant, or after the death of the Participant, the Beneficiary or the legal representative of the Participant.
(i) "Retirement Date" means the date on which a Director terminates service by reason of resignation, loss of election or other loss of office, retirement or death.
(j) "Share" means a non-voting, XXXXXXXXXX common share of the Company.
(k) "Unit" means a deferred stock unit issued under the Plan.
Our understanding of the facts and the proposed Plan is as follows:
FACTS
1. The Company is incorporated under the laws of XXXXXXXXXX, and is a public corporation and a taxable Canadian corporation as those terms are defined in subsection 89(1) of the Act. The fiscal year end of the Company is XXXXXXXXXX.
2. XXXXXXXXXX.
3. The head office and mailing address of the Company is:
XXXXXXXXXX.
The Company files its tax returns at the XXXXXXXXXX Taxation Centre, and is served by the XXXXXXXXXX Tax Services Office.
4. Directors are paid fees for services rendered in their capacity as Directors, including annual retainer fees, meeting attendance fees and supplemental fees for committee chairmanships.
PROPOSED PLAN
5. The Company proposes to establish the Plan subject to receipt of a favourable advance income tax ruling. The Plan will be administered by the Committee. Under the Plan, Directors may irrevocably elect, in writing, to receive XXXXXXXXXX of fees referred to in 4 above in the form of Units, for fees that accrue after the date of the election. The election will continue in force from year to year unless changed or revoked by the Participant in writing. Such change or revocation will apply with respect to fees accrued after the date of the change or revocation.
6. Directors who wished to participate in the proposed Plan for the Company's XXXXXXXXXX quarter of the XXXXXXXXXX fiscal year completed, by XXXXXXXXXX, elections in respect of Director's fees accruing after XXXXXXXXXX and payable after the date of this advance income tax ruling. The elections are conditional upon the receipt of a favourable advance income tax ruling.
7. The number of Units to be issued to the Participants will be based on the percentage of fees elected as in 5 above, divided by the fair market value of a Share on the day the fees are payable. Units will be credited to a notional account established for each Participant.
8. Additional Units will be credited to Participants' accounts when dividends are paid on the Shares, based on the fair market value of the Shares on the date of payment of the dividend.
9. Subject to 12 below, the number of Units in a Participant's account will be proportionally adjusted for any subdivision, consolidation, reclassification or conversion of the Company's Shares, stock dividends, recapitalization, reorganization, or any other event affecting the Shares.
10. Units will be redeemable only after the Participant's Retirement Date, upon receipt of a Redemption Notice. A Redemption Notice will be deemed to be received before XXXXXXXXXX of the year following a year in which a Retirement Date occurs for a particular Participant, if it is not received before that date.
11. Units are redeemable for cash only, less any applicable statutory deductions. The amount to be paid for the Units will be equal to the number of Units being redeemed multiplied by the closing price of a Share on the XXXXXXXXXX Stock Exchange on the date the Redemption Notice is received or deemed to be received. Such cash will be paid no later than the end of the first calendar year after the year in which the Retirement Date occurs.
12. No amount will be paid to, or in respect of, a Participant under the Plan, or pursuant to any other arrangement, and no Unit will be granted or credited to a Participant's account under the Plan 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.
13. The Committee may amend, suspend or terminate the Plan at any time except with respect to rights that have accrued to a Participant at the date of such amendment, suspension or termination. Notwithstanding the foregoing, any amendment, suspension or termination of the Plan shall be such that the Plan continuously meets the requirements of paragraph 6801(d) of the Income Tax Regulations (the "Regulations"), or any successor provision thereto.
14. The costs related to the implementation and administration of the Plan will be borne by the Company.
PURPOSE OF THE PROPOSED PLAN
The purpose of the proposed Plan is to provide Directors with a compensation program that is compatible with shareholders' interests, and is attractive to Directors and prospective Directors.
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
e) the subject of a ruling previously issued by this Directorate.
RULINGS GIVEN
Provided the above statement of facts and description of the proposed Plan are accurate and constitute a complete disclosure of all relevant facts and terms of the proposed Plan, and provided that the proposed Plan is implemented as described, we rule as follows:
A. The Plan will be a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations and will therefore be excluded from the definition of "salary deferral arrangement" as contained in subsection 248(1) of the Act.
B. The Plan 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 D and E 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 Plan by reason only of the implementation and operation of the Plan.
D. An amount received by a Participant as provided in 11 above, including applicable withholdings, will be taxable to the Participant by virtue of paragraph 6(1)(c) or subparagraph 115(1)(a)(i) of the Act in the year in which it is received.
E. An amount receivable by the Participant under the Plan as at the date of the Participant's death will constitute a "right or thing" for the purposes 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 company of the costs relating to the implementation or administration of the Plan.
G. Subject to section 67, subsection 78(4) and paragraph 18(1)(a) of the Act, an amount paid or payable as provided in 11 above by the Company will be deductible by the Company in calculating its income in respect of the year in which the amount is paid or payable in accordance with section 9 of the Act.
The above advance income rulings, which are based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R4 Advance Income Tax Rulings, dated January 29, 2001 and are binding on the Canada Customs and Revenue Agency provided that proposed Plan is implemented on or before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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