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: Will certain amendments to a DSU Plan affect its status as a plan that complies with paragraph 6801(d)?
Position: No.
Reasons: The Plan continues to comply with the requirements of paragraph 6801(d) of the Regulations.
XXXXXXXXXX 2004-006790
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
Deferred Share Unit Plan for Key Employees (the "Employees' DSU Plan")
XXXXXXXXXX (the "Corporation") (XXXXXXXXXX )
This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the Corporation. We also acknowledge our telephone conversations (XXXXXXXXXX), which resulted in amendments to the Employees' DSU Plan and to the facts and proposed transactions as evidenced by your letter of XXXXXXXXXX.
Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter, (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.
DEFINITIONS AND ABBREVIATIONS
In this letter, the following terms have the meanings specified:
"Beneficiary" means a person or persons each of whom, on the date of a Participant's death, is a person designated in accordance with Section XXXXXXXXXX of the Employees' DSU Plan and the laws applying to the Employees' DSU Plan, or where no such person has been validly designated by the Participant, or where no such person survives the Participant, the Participant's legal representatives;
"Bonus DSU" means a unit credited by means of a bookkeeping entry on the books of the Corporation to a Participant's account which is granted in accordance with Section XXXXXXXXXX and administered in accordance with the terms and conditions of the Employees' DSU Plan, the value of which on a particular date, shall be equal to the Market Value of a Share;
"Business Day" means any day other than a Saturday, Sunday or any statutory holiday in the Province of XXXXXXXXXX, on which banks are generally open for business in XXXXXXXXXX;
"CRA" means Canada Revenu Agency;
"Change in control" means any change in the holding, direct or indirect, of the securities of the Corporation as a result of which a person (as defined in the XXXXXXXXXX), or a group of persons, are in a position to exercise effective control of the Corporation;
"Discretionary DSU" means a unit credited by means of a bookkeeping entry on the books of the Corporation to a Participant's account which is granted in accordance with Section XXXXXXXXXX and administered in accordance with the terms and conditions of the Employee's DSU Plan, the value of which, on a particular date, shall be equal to the Market Value of a Share;
"Regulations" means the Income Tax Regulations; and
"Termination Date" means the earliest date on which both of the following conditions are met: the Key Employee (1) has ceased to be employed by the Corporation or any Affiliate for any reason whatsoever, including termination of employment by the employer (whether or not for cause), voluntary resignation, retirement from active employment or death of the Key Employee, and (2) is not a Director of the Board or of the board of an Affiliate.
FACTS
1. The Corporation established the Employees' DSU Plan effective XXXXXXXXXX. The Employees' DSU Plan is the subject of Advance Income Tax Rulings #983183 dated XXXXXXXXXX, 1999, #990992 dated XXXXXXXXXX, 1999 and #2001-010448 dated XXXXXXXXXX, 2001 (collectively, "the Rulings"). It is a prescribed plan under paragraph 6801(d) of the Regulations. Only key employees, as determined by the Board of Directors of the Corporation, are eligible to participate in the Plan (the "Participants").
2. The word "Affiliate" is defined in Section XXXXXXXXXX of the Employees' DSU Plan to mean an "Affiliate of the Corporation as that term is defined in paragraph 3 of Revenue Canada's Interpretation Bulletin IT-337R3, Retiring Allowances.
3. Under Section XXXXXXXXXX of the Employees' DSU Plan, a Participant, or the legal representative of a Participant's estate, as applicable, has the option of electing an Entitlement Date by filing an irrevocable election with the Corporation no later than XXXXXXXXXX of the calendar year commencing immediately after the Participant's Termination Date. Where an election is not filed within the permissible period, the Entitlement Date for such Participant shall be XXXXXXXXXX of the calendar year commencing immediately after the Participant's Termination Date. On the Entitlement Date, the Bonus DSU and the vested Discretionary DSU credited to the Participant's account under the Employees' DSU Plan is valued and becomes payable to a Participant.
Subject to Section XXXXXXXXXX, which provides the Entitlement Date for a Participant's Termination Date occurring within 90 days following a Change in Control of the Corporation, Section XXXXXXXXXX of the Employees' DSU Plan currently provides that the Entitlement Date selected by the Participant, or the legal representative of the Participant's estate, as applicable, shall not be before the later of 15 days after the date on which the election is filed with the Corporation and 30 days after the Participant's Termination Date, and shall not be later than XXXXXXXXXX of the calendar year commencing immediately after the Participant's Termination Date.
As a result of the restrictions noted above, a Participant or the legal representative of a Participant's estate, as applicable, is prevented from redeeming Bonus DSUs and vested Discretionary DSUs prior to the date that is the later of 30 days following the Participant's Termination Date or 15 days following the filing of an election for an Entitlement Date with the Corporation.
4. Section XXXXXXXXXX of the Employees' DSU Plan currently contemplates that the Corporation may pay the entire value of any DSU entitlement of the Participant at the Entitlement Date under the Employees' DSU Plan in cash or in shares purchased on the open market on behalf of the Participant or the Participant's estate.
5. Section XXXXXXXXXX of the Employees' DSU Plan provides:
"The Board may from time to time amend, suspend or terminate the Plan in whole or in part. However, any such amendment, suspension or termination shall not adversely affect the rights accrued to any Participant under any Agreement existing at the time of such amendment, suspension or termination without the consent of the affected Participant. 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.
If the Board terminates the Plan, prior awards of Bonus DSUs and Discretionary DSUs (if any) shall remain outstanding and in effect and paid in due course upon the Participant's Termination Date for purposes of the Plan in accordance with the applicable terms and conditions applicable to such Bonus DSUs and Discretionary DSUs, as applicable, immediately prior to the termination of the Plan."
6. Section XXXXXXXXXX of the Employees' DSU Plan currently provides that "the payment of any sum of money in cash in lieu of notice of the termination of employment, shall not be considered as extending the period of employment for the purposes of the Plan." Section XXXXXXXXXX only refers to a payment of cash and not an actual period of notice. As well, it does not state that termination of employment includes a wrongful termination.
7. Section XXXXXXXXXX of the Employees' DSU Plan currently provides that in the event of a Participant's death, any and all Bonus DSUs and vested Discretionary DSUs then credited to the Participant's account shall become payable to the Participant's estate in accordance with Section XXXXXXXXXX thereof. The Employees' DSU Plan currently does not require the Participant to designate a beneficiary to receive any benefits that are payable under the Employees' DSU Plan.
PROPOSED AMENDMENTS
8. Pursuant to its amending power in Section XXXXXXXXXX of the Employees' DSU Plan, the Corporation proposes to amend the Employees' DSU Plan, with effect as of the date the rulings requested herein are received. Accordingly, the amendments described below would apply to a Participant who has not made an election before the date the rulings requested herein are received.
9. The Corporation is proposing to amend the Employees' DSU Plan to update the definition of the word "Affiliate" found in Section XXXXXXXXXX of the Employees' DSU Plan to reflect the cancellation and replacement of IT-337R3 with IT-337R4, as well as Revenue Canada's name change to the CRA.
10. The Corporation is proposing to amend Section XXXXXXXXXX of the Employees' DSU Plan in order to provide that, subject to a Change in Control of the Corporation, the Participant, or the Participant's Beneficiary, as applicable, may elect an Entitlement Date that is not before the later of 1 Business Day after the date on which the election is filed with the Corporation and 1 Business Day after the Participant's Termination Date, and not later than XXXXXXXXXX of the calendar year commencing immediately after the Participant's Termination Date. Consequently, all amounts would continue to be received by a Participant or a Participant's Beneficiary under the Employees' DSU Plan after the time of the Participant's death or retirement from, or loss of, the office or employment and no later than the end of the first calendar year commencing thereafter, as required under subparagraph 6801(d)(i) of the Regulations.
11. The Corporation is proposing to amend Section XXXXXXXXXX of the Employees' DSU Plan to clarify its right to pay the value, determined as at the Entitlement Date, of the Bonus DSUs and Discretionary DSUs in the form of a lump sum cash payment to the Participant or the Participant's Beneficiary, as applicable or used to purchase shares on the open market on behalf of the Participant or the Participant's Beneficiary, as applicable.
12. The Corporation is proposing to amend Section XXXXXXXXXX of the Employees' DSU Plan to clarify that a period of notice shall not be considered as extending the period of employment for the purposes of the Employees' DSU Plan, and is also proposing to amend Section XXXXXXXXXX to clarify that termination of employment includes termination which is wrongful or otherwise.
13. The Corporation is proposing to amend Section XXXXXXXXXX of the Employees' DSU Plan to require a Participant to designate in writing a person or persons, each of whom is a dependant or relation of the Participant, as a beneficiary to receive any benefits that are payable under the Employees' DSU Plan upon the death of such Participant. Where the Participant designates more than one person as beneficiary, the Participant shall be required to indicate the percentage of benefits under the Employees' DSU Plan that shall be payable to each such person. Consequently, after a Participant's death, the Employees' DSU Plan would provide for payment to a person who is a dependent or relation of the Participant, as is permitted under the preamble in paragraph 6801(d) of the Regulations.
PURPOSE OF THE PROPOSED AMENDMENTS
14. The purpose of the amendments to Section XXXXXXXXXX of the Employees' DSU Plan is to provide greater flexibility to the Participants in the determination of an Entitlement Date.
15. The amendment to Section XXXXXXXXXX will clarify entitlements and rights under the Employees' DSU Plan following the death of a Participant, and permit a Participant to designate one or more persons as a beneficiary under the Employees' DSU Plan.
16. The other amendments to the Employees' DSU Plan are intended to clarify or correct existing terms of the agreement.
17. We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in this request for ruling:
(i) is in an earlier return of the Corporation or a related person,
(ii) is being considered by a Tax Services Office or Taxation Center in connection with a previously filed return of the Corporation or a related person,
(iii) is under objection by the Corporation or a related person,
(iv) is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired, and
(v) is the subject of a ruling previously issued by the Directorate to the Corporation or a related person other than as disclosed herein.
18. The mailing address of the Corporation is XXXXXXXXXX. The Corporation files its income tax returns at the XXXXXXXXXX Taxation Center and deals with the XXXXXXXXXX Tax Services Office.
RULINGS GIVEN
Provided the preceding statements constitute a complete disclosure of all the relevant facts, the proposed amendments to the Employees' DSU Plan and the purpose of the proposed amendments to the Employees' DSU Plan, and provided the Employee's DSU Plan is amended as proposed, we confirm that:
A. The amendments described in paragraphs 9 to 13 above, will not disqualify the Employees' DSU Plan from being a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations.
B. Provided the Employees' DSU Plan was implemented prior to the deadlines set out in the Rulings, the rulings issued in the Rulings will continue to be binding on the CRA in accordance with the practice outlined in Information Circular 70-6R5 Advance Income Tax Rulings dated May 17, 2002, and are binding on the CRA provided that the Employees' DSU Plan is amended by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
Section Manager
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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