2001 Ruling 2001-0096393 - PHANTOM STOCK 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:

Will certain amendments to a 6801(d) plan cause the plan to no longer qualify under 6801(d) of the Regulations?

Position: No.

Reasons:

The amendments do not offend the provisions of paragraph 6801(d).

XXXXXXXXXX 						2001-009639

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling - XXXXXXXXXX (the "Company")

This is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-noted company.

We understand that, to the best of your knowledge and that of the Company, none of the issues involved in the ruling request is:

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

(ii) 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,

(iii) under objection by the Company or a related person,

(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, nor

(v) the subject of a ruling previously issued by the Directorate other than the rulings described in 2. below.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed amendments and purpose of the proposed amendments is as follows:

Facts

1. The Company is a resident of Canada and has an XXXXXXXXXX year end. It is a public corporation and a Canadian corporation for purposes of the Act. The Company (but not all its subsidiaries) files its tax returns with the XXXXXXXXXX Tax Centre and is located within the area served by the XXXXXXXXXX Tax Services Office. The tax account number of the Company is XXXXXXXXXX.

2. The Company and its subsidiaries established a Deferred Stock Unit Plan (the "Plan") for certain of their executives which was put into place before XXXXXXXXXX and which became effective for the fiscal year beginning XXXXXXXXXX. The Canada Customs and Revenue Agency issued an advance income tax ruling (#9724523 dated XXXXXXXXXX , 1997) and a supplemental advance income tax ruling (#9729633 dated XXXXXXXXXX , 1997) (hereinafter collectively referred to as the "Ruling Letter") with respect to the Plan.

3. Under the Plan, participating Executives can elect to receive XXXXXXXXXX% of certain bonus incentives in the form of deferred stock units (the "Units"). The number of Units credited to an Executive's notional account is determined by reference to the cash value of the incentives which would have been awarded to that Executive as calculated under the Company's (and its subsidiaries') bonus guidelines in its Quality Performance Initiative Plan had the Executive chosen to receive all of his or her incentive in the form of cash rather than Units. This cash value is divided by the value of a common share of the Company (established in accordance with the Plan) at the start of the financial year of the Company to determine the number of Units, which are awarded after the performance period.

4. The Plan is a prescribed plan or arrangement as described in paragraph 6801(d) of the Income Tax Regulations and is therefore excluded from the definition of a "salary deferral arrangement", as contained in subsection 248(1) of the Act. The principal features of the Plan are more particularly described in the Ruling Letter.

Proposed Amendments

5. The Plan will be amended to add a XXXXXXXXXX% participation level. That is, after the amendment, participating executives may elect to receive XXXXXXXXXX% of certain bonuses in the form of Units.

6. Rather than using the Company common share value at the start of the financial year of the Company, the number of Units to be awarded to a participating executive will be calculated using the Company common share value at the time of the award.

Purpose of the Proposed Amendments

7. The purpose of the first proposed amendment is to offer more flexibility to participating executives in determining which percentage of their bonuses will be received in the form of Units.

8. The purpose of the second proposed amendment is to ensure that the value of the Units is determined at the time of their issuance rather than at the beginning of the financial year of the Company, thereby allowing for a more accurate picture of the value of the Units.

Ruling Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed amendments and purpose of the proposed amendments, and provided that the proposed amendments are made as described above, we rule as follows:

A. Provided the Plan was implemented prior to the deadline set out in the Ruling Letter, the rulings issued in our Ruling Letter will continue to be binding on the Agency in accordance with the practice outlined in Information Circular 70-6R4 dated January 29, 2001.

The above ruling, which is 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 dated January 29, 2001, and is binding on the Canada Customs and Revenue Agency provided that the proposed amendments are made by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch