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 the payment of director's fees in the form of deferred share units result in an SDA?
Position: No.
Reasons: 6801(d) is satisfied.
XXXXXXXXXX 2001-008218
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, requesting an advance income tax ruling on behalf of XXXXXXXXXX (the "Corporation").
Definitions
Certain terms are defined as follows for the remainder of this ruling:
(a) "Act" means the Income Tax Act (Canada), as amended from time to time.
(b) "Affiliate" means an affiliate of the Corporation as that term is defined in paragraph 3 of the Canada Customs and Revenue Agency's Interpretation Bulletin IT-337R3, Retiring Allowances.
(c) "Board" means the board of directors of the Corporation.
(d) "Committee" means the Human Resources and Compensation Committee of the Board.
(e) "Deferred Share Unit", or "DSU" means a bookkeeping entry on the books of the Corporation, the value of which on any particular date shall be equal to the average closing price of a Share on the Stock Exchange on the five Trading Days prior to that date on which at least one board lot of Shares was traded.
(f) "Director" means a director of the Corporation.
(g) "Director's Termination Date" means the earliest date on which both of the following conditions are met by a Director: (1) the Director is not a member of the Board or of the board of directors of an Affiliate; and (2) the Director is not otherwise employed by the Corporation or any Affiliate.
(h) "Plan" has the meaning ascribed thereto in 2. below.
(i) "Redemption Date" with respect to a Director, means the date specified in the written redemption notice filed by the Director, or where the Director has died, his/her legal representative, with the Secretary of the Corporation, which in any event shall be after the date of filing of the redemption notice and within the period from the Director's Termination Date to XXXXXXXXXX of the first calendar year commencing after the Director's Termination Date.
(j) "Share" means a common share of the Corporation.
(k) "Stock Exchange" means XXXXXXXXXX, or if the Shares are not listed on XXXXXXXXXX, such other stock exchange in Canada on which the Shares are listed, or if the Shares are not listed on any stock exchange, then on the over-the-counter market.
(l) "Trading Day" means any date on which the Stock Exchange is open for the trading of Shares.
Our understanding of the facts, proposed plan and purpose of the proposed plan is as follows:
Facts
1. The Corporation is incorporated under the laws of XXXXXXXXXX. It is a "public corporation" and a "taxable Canadian corporation" as those terms are defined in subsection 89(1) of the Act. The Shares of the Corporation are principally traded on XXXXXXXXXX. The Corporation has a fiscal year-end of XXXXXXXXXX.
Proposed Plan
2. The Corporation will establish a new incentive plan for Directors (the "Plan"). The incentive provided by the Plan will be in addition to the Directors' normal remuneration. The Plan will comprise a plan text and written agreements between the Corporation and each Director setting out the terms of the Director's participation in the Plan. The relevant features of the Plan are as follows:
a. The Plan will be administered by the Committee, beginning with the calendar year in which the Corporation receives a ruling from the Canada Customs and Revenue Agency ("CCRA") that the Plan is a "prescribed plan or arrangement" as described in paragraph 6801(d) of the Income Tax Regulations ("Regulation 6801(d)").
b. Each year, the Corporation will grant XXXXXXXXXX DSUs to each Director. For years following XXXXXXXXXX, in the case of a Director who is a Director on XXXXXXXXXX of a year, this grant of DSUs will be effective as of XXXXXXXXXX of such year and in the case of an individual who becomes a Director after XXXXXXXXXX of a year, this grant of DSUs will be effective as of his/her date of appointment to the Board. For the XXXXXXXXXX calendar year, the grant of DSUs will be effective on the first day of the fiscal quarter of the Corporation next following the date of receipt by the Corporation of an advance income tax ruling from the Canada Customs and Revenue Agency ("CCRA") confirming that the Plan meets the requirements of Regulation 6801(d). It is expected that all Directors will participate in the Plan. A Director's participation in the Plan will be evidenced by a written agreement between the Director and the Corporation.
c. In the event that any cash dividend is declared and paid by the Corporation on Shares, a Director shall be credited with additional DSUs. The number of such additional DSUs will be calculated by dividing the total amount of the dividends that would have been paid to such Director if the DSUs in the Director's account had been Shares by the closing price of a Share on the Stock Exchange on the date on which the cash dividends are paid on the Shares.
d. 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 Corporation's assets to shareholders, or any other change affecting the Shares, such proportionate adjustments shall be made with respect to the number of DSUs then outstanding under the Plan as the Board in its sole discretion determines. No amount will be paid to, or in respect of a Director under the Plan or pursuant to any other arrangement, no additional DSUs will be granted and no other benefit will be conferred upon or in respect of a Director in order to compensate for a downward fluctuation in the price of Shares.
e. The Corporation shall maintain in its books an account for each Director which shall be credited with the grants of DSUs received by the Director from time to time.
f. The Director or, where the Director has died, his/her legal representative, may redeem the value of the DSUs credited to the Director's account following the Director's Termination Date by filing a written redemption notice with the Secretary of the Corporation specifying the applicable Redemption Date.
g. As soon as practicable after the Redemption Date specified by a Director or his/her legal representative, as the case may be, and, in any event no later than XXXXXXXXXX of the first calendar year commencing after the Director's Termination Date, the value of the DSUs redeemed by or in respect of the Director shall be paid to the Director, or if the Director has died, to his/her estate, in the form of a lump sum cash payment, net of any applicable withholdings. The value of the DSUs redeemed by or in respect of a Director shall be determined based on the average closing price on the Stock Exchange of a Share on the last five Trading Days immediately preceding the Director's Redemption Date on which at least one board lot of Shares was traded.
h. The Plan may be amended or terminated in whole or in part at anytime by the Board, except as to rights already accrued by the Directors under the Plan. Notwithstanding the foregoing, any amendment or termination of the Plan shall be such that the Plan continuously meets the requirements of Regulation 6801(d) or any successor provision thereto.
Purpose of the Proposed Plan
A. The purpose of the Plan is to promote a greater alignment of interests between the Directors and the shareholders of the Corporation.
To the best of your knowledge and that of the Corporation, none of the issues in respect of which rulings are herein requested are:
(a) in an earlier return of the Corporation or a related person of the Corporation;
(b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation or a related person of the Corporation;
(c) under objection by the Corporation or a related person of the Corporation;
(d) before the courts; or
(e) the subject of a ruling previously issued by the CCRA Rulings Directorate.
The tax account number of the Corporation is XXXXXXXXXX. The Corporation's income tax returns are filed at the XXXXXXXXXX Tax Services Office.
The mailing address of the Corporation is:
XXXXXXXXXX.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed plan and purpose of the proposed plan, and provided that the terms of the Plan are as described above, 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 a "salary deferral arrangement" ("SDA"), as contained in subsection 248(1) of the Act.
B. The Plan will not constitute an "employee benefit plan" as that term is defined in subsection 248(1) of the Act.
C. Provided that the Plan remains unfunded, the Plan will not constitute a "retirement compensation arrangement", as that term is defined in subsection 248(1) of the Act.
D. Except as provided in Rulings E and F below, no amount will be included, pursuant to section 3, subsection 5(1), section 6, paragraph 56(1)(a) or subparagraph 115(1)(a)(i) of the Act, in computing the income of any Director in respect of the DSUs that are credited under the Plan to a Director.
E. The amount to be included in the income of a resident Director for a year under the Plan will consist of the aggregate of the following amounts:
a) under paragraph 6(1)(c) of the Act, the cash payments paid by the Corporation to the Director as described in 2(g) above;
b) under paragraph 6(1)(c) of the Act, the amount paid by the Corporation to the Director's estate, as a result of the Director's death, as described in 2(g) above; and
c) under paragraph 6(1)(c) of the Act, the amount of applicable withholding taxes withheld by the Corporation as described in 2(g) above.
F. The amount to be included in the income of a non-resident Director for a year under the Plan will consist of the aggregate of the following amounts:
a) under paragraph 6(1)(c) and subparagraph 115(1)(a)(i) of the Act, the cash payments, to the extent attributable to services rendered in Canada, paid by the Corporation to the Director as described in 2(g) above;
b) under paragraph 6(1)(c) and subparagraph 115(1)(a)(i) of the Act, the amount, to the extent attributable to services rendered in Canada, paid by the Corporation to the Director's estate, as a result of the Director's death, as described in 2(g) above; and
c) under paragraph 6(1)(c) and subparagraph 115(1)(a)(i) of the Act, the amount, to the extent attributable to services rendered in Canada, of applicable withholding taxes withheld by the Corporation as described in 2(g) above.
G. An amount payable under the Plan to a Director's estate as a result of the Director's death will constitute a right or thing held by the deceased Director at the time of death for purposes of subsection 70(2) of the Act.
H. Subject to paragraph 18(1)(a) and section 67 of the Act, amounts referred to in E and F above will be deductible by the Corporation in calculating its income in respect of the year in which the cash payment is made and taxes are withheld, in accordance with section 9 of the Act.
The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and are binding on the Canada Customs and Revenue Agency provided that the Plan is implemented by XXXXXXXXXX.
The above rulings are based on the draft of the Plan, the terms of which are described in 2 above, that was submitted with the request. Any substantive difference between this version and the final version of the Plan would invalidate the rulings provided.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001
Email this Content