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:
Whether arrangement is exempted from SDA definition by virtue of 6801(d);
Position:
Yes; however, tax withholding on payments to non-residents will be made pursuant to Reg. 103 and not Reg. 105 as initially requested by the client.
Reasons:
All requirements in 6801(d) are met.
XXXXXXXXXX
XXXXXXXXXX 982947
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1998
Dear Sirs:
Re: Advance Tax Ruling
XXXXXXXXXX (the "Corporation") - XXXXXXXXXX
Deferred Share Unit Program (the “Plan”)
This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-named taxpayer. We also acknowledge the information provided during our telephone conversations (XXXXXXXXXX) and your facsimile transmissions dated XXXXXXXXXX. A draft of the Plan was not submitted with your request, but the relevant terms of the Plan were explained in your letter.
Our understanding of the facts and proposed Plan is as follows:
DEFINITIONS
Certain terms and expressions used in this letter are defined as follows:
“Annual Retainer Compensation” means the amount of compensation which directors are entitled to receive with respect to membership on the board and in respect of their services as chair of the board.
“Board” means the board of directors of the Corporation.
“Deferred Share Unit” means a bookkeeping entry credited to a director’s account in accordance with the terms of the Plan.
“Director” otherwise referred to as “Member” in the ruling request, means a member of the Board.
“Participant” means a Director who becomes a participant in the Plan by filing an election in accordance with the terms of the Plan.
“Quarter” shall mean a fiscal quarter of the Corporation and which, until changed by the Board, shall be the three month period ending March 31, June 30, September 30 or December 31 in any calendar year.
“Share” means a common share of the Corporation and such other share as is added thereto or substituted therefore as a result of amendments to the articles of the Corporation, reorganization or otherwise.
“Termination Date” with respect to a Participant, means the date of the event (whether a retirement, termination or loss of employment or office, or death) causing the Participant to no longer be any of a Director, executive officer or employee of the Corporation.
“Valuation Date” with respect to a Participant, means such date that is the next trading day after the Participant’s Termination Date, unless such date would occur during the period commencing thirty (30) days prior to the end of a Quarter and ending prior to the public disclosure of interim financial statements for the Quarter, in which case such Valuation Date will be the 8th trading day following the day on which public disclosure of the interim financial statements is made.
RELEVANT FACTS
1. The Corporation is incorporated under the laws of Canada and has its head office in XXXXXXXXXX. The Corporation is a public corporation and the markets for trading its Shares are the XXXXXXXXXX stock exchanges.
The Corporation deals with the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre. Its mailing address is XXXXXXXXXX.
PROPOSED PLAN
2. The Corporation is proposing to provide a compensation system for Directors that is reflective of the responsibility, commitment and risk accompanying Board membership.
3. The relevant terms of the Plan are as follows:
(a) Every person who is a Director may execute a prescribed form electing to be a Participant in the Plan in respect of their Annual Retainer Compensation. The Plan will be administered by the XXXXXXXXXX (the “Committees”) of the Board.
(b) Each year, prior to December 31, Directors will be permitted to elect, in writing, to receive a percentage XXXXXXXXXX of their Annual Retainer Compensation for the next calendar year in Deferred Share Units (hereinafter referred to as the “Elected Amount”) and the balance either in cash, Shares or stock options.
(c) An account shall be maintained by the Corporation for each Participant and will be credited with notional grants of Deferred Share Units received by a Participant from time to time.
(d) The number of Deferred Share Units granted in respect of a year will be calculated by dividing the dollar amount of the Elected Amount by the weighted average of the trading price for one Share of the Corporation on the XXXXXXXXXX Stock Exchange for the five trading days immediately preceding the date or dates on which the Participant would normally receive Annual Retainer Compensation payments.
(e) Whenever cash dividends are paid on the Shares, additional Deferred Share Units will be credited to the Participant’s Deferred Share Unit account, based on the fair market value of a Share on the date such dividends are paid. The number of such additional Deferred Share Units will be calculated by dividing the dividends that would have been paid to such Participant, if the Deferred Share Units in the Participant’s Deferred Share Unit account had been Shares, by the fair market value of one Share on the date on which the dividends were paid on the Shares.
(f) In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off or other distribution of Corporation assets (other than normal cash dividends) to shareholders, or any other change affecting the Shares, such proportionate adjustments, to reflect such change or changes, shall be made with respect to the number of Deferred Share Units outstanding under the Plan. However, no amount will be paid to, or in respect of, a Participant under the Plan or pursuant to any other arrangement, and no Deferred Share Unit will be granted nor will any credit be made to such Participant’s Deferred Share Unit account under the Plan to compensate for a downward fluctuation in the price of Shares, nor would any other form of benefit be conferred upon, or in respect of a Participant for such purpose.
(g) Within 30 days after the Participant’s Termination Date, the Corporation will make a payment to the Participant (or in case of death his/her legal representative) with respect to the Participant’s Deferred Share Unit account balance, provided that in any event such payment date shall be no later than December 31 of the first calendar year after the Participant’s Termination Date.
(h) The payment owing in respect of the Deferred Share Units (i.e. the number of units in the Participant’s Deferred Share Unit account multiplied by the fair market value of one Share established on the Valuation Date) will be paid in cash, net of applicable withholdings.
(i) The Corporation will be responsible for all costs relating to the administration of the Plan.
(j) The terms of the Plan will provide that the Board can unilaterally amend or terminate the Plan at any time except with respect to rights that have accrued to a Participant at the date of the amendment or termination of the Plan.
PURPOSE OF PROPOSED PLAN
4. The purpose of the proposed Plan is to provide a compensation system for Directors that is reflective of the responsibility, commitment and risk accompanying Board membership.
5. 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,
(b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation,
(c) under objection by the Corporation or a related person,
(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(e) the subject of a ruling previously issued by the Directorate.
RULINGS GIVEN
Provided that the statement of facts and the description of the proposed Plan are correct and constitute a complete disclosure of all the relevant facts and relevant terms of the proposed Plan, that the proposed Plan is established in the manner described in paragraphs 2 and 3(a) to (i) above, we rule as follows:
A. An arrangement in writing between the Corporation and a Director under the terms of the Plan will be a prescribed plan or arrangement as described in paragraph 6801(d) of the Income Tax Regulations and will therefore be exempted from the definition of a "salary deferral arrangement" as contained in subsection 248(1) of the Income Tax Act (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. No amount will be included pursuant to subsection 5(1), section 6, paragraph 56(1)(a) or subparagraph 115(1)(a)(i) of the Act in the income of a Participant in respect of the Plan whether by reason of the implementation of the Plan or prior to any payment to the Participant.
D. 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 Corporation of the costs relating to the administration of the Plan.
E. Payments received under the Plan by a Participant in accordance with paragraphs 3(g) and 3(h) above and applicable withholdings will be included in the income of the Participant pursuant to subsection 5(1), section 6 or subparagraph 115(1)(a)(i) of the Act for the year in which the payments are received. Payments received by the Participant’s legal representative will also be subject to tax, in the year of receipt, in accordance with the Act.
F. Subject to paragraph 18(1)(a) and section 67 of the Act, any amount referred to in ruling E above that is a cash payment made by the Corporation in a particular year that satisfied any portion of a Participant's or Participant's legal representative's entitlement under the Plan, in accordance with paragraphs 3(g) and 3(h) above, and any amount representing a withholding made on such payment under the Plan will be deductible for that year in accordance with section 9 of the Act.
The above advance income tax rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and are binding upon the Department provided the proposed Plan is implemented within six (6) months of this letter.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
6
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