Regulation 6801

underline;">: Sabbatical Fund. A self-funded sabbatical program is to be implemented as agreed under a Collective Agreement. During XX consecutive years, the "Employer" will withhold XX% of a regular employee's (a "Participant's") "Base Salary" (e.g., excluding overtime) and will maintain this amount in a "Sabbatical Fund" for the Participant's benefit. The Sabbatical Fund will bear interest, and such interest will be reported annually as employment income.

Sabbatical Year

During the Sabbatical Year: the Participant will be on a leave of absence from the Employer and shall receive as compensation the monies accumulated in the Sabbatical Fund, plus interest not yet paid to the Participant and shall be subject to all deductions required by law; and other than such amounts paid to the Participant, he or she will not receive any salary or wages, except for reasonable fringe benefits (including insurance coverage) that the Employer usually pays to or on behalf of its employees. The Participant may make a one-time election for payment, less applicable withholdings required by law or otherwise, in one lump sum payment at the beginning of the Sabbatical Year, or payment on a weekly basis. The Participant has the option of maintaining, through the Employer, extended health benefits, dental plan and supplemental term life insurance and spousal child/life coverage by the Participant's pre-payment, to the Employer prior to commencement of the Sabbatical Year, of XX% of the applicable premiums in one lump sum.

Cash-outs

On completion of the Sabbatical Year, the Participant must return to work subject to limited exceptions, and a Participant may not withdraw from the Plan except in limited extenuating circumstances such as financial hardship. A Participant who ceases to be employed by the Employer is deemed to have withdrawn from the Plan and will be paid the Sabbatical Fund plus interest. On death, such payment is made to the estate.

Ruling

The Plan will not constitute a salary deferral arrangement…by virtue of the Plan qualifying…as a prescribed plan or arrangement pursuant to paragraph 6801(a)… ." of the Regulations.

Reg. 6801(a)(v) will not be satisfied where an employee who works full time before his leave of absence and returns to his employment on a part time basis, as a return to full time employment for a period equal to the duration of the leave of absence is required. However, an employee can take the leave of absence before the end of the Plan rather than at its end, if the other conditions are satisfied,

Discussion of deficiencies in draft DSLP to be included in a school board's collective agreement.

Comments on various deficiencies in proposed draft DSLP.

A deferred salary leave plan will cease to be a prescribed plan at the time that it is reasonable to assume that the conditions of the plan will not be fulfilled and could be subject to the salary deferral rules from its inception. Where, due to a change in circumstance, the employee decides to leave his employment, a penalty will be imposed.

If a teacher is employed but is not required to report to work between semesters, the time between semesters may be included in the calculation of the minimum six-month period for purposes of Regulation 6801(a).

Would an amendment to a deferred share unit plan giving participants the option to be paid the value of their awards in instalments over a maximum of six years after retirement or termination of employment would cause the plan to cease to qualify under Reg. 6801(d)? CRA responded:

[T]he plan must provide for payments to be made no earlier than the employee's retirement, termination of employment or death and no later than the end of the first calendar year commencing after that time. …[Here] the plan would cease to be excluded from the SDA rules thereby resulting in the value of any outstanding awards being included in the respective employee's income. …

If it is determined based on the facts that a DSU plan was never intended to provide for payments within the time parameters of paragraph 6801(d)… the SDA rules would apply retroactively. For example, … where a DSU plan was terminated and all outstanding awards were redeemed in cash…[a]s the early redemption did not involve extraordinary circumstances…we took the position that the SDA rules applied retroactively with respect to any outstanding awards.

See also summary under s. 6(11).

When must an employee make an election to defer salary or wages by receiving DSUs instead? CRA responded:

In general, a DSU plan must require that an employee's election be made prior to the earlier time when either: (i) the employee has a right to receive the compensation and can legally enforce payment of the compensation, or (ii) the employee has unfettered control over, access to, or use of, the compensation, i.e., the employee has constructive receipt of the compensation.

underline;">: Current Plan. Under a deferred unit plan administered by the "Committee" of the Board of Directors of Aco (a listed Canadian company), three classes of deferred share units ("DSUs") may be awarded to Participants: Aco DSUs respecting the shares of Aco ("Aco Shares"); Bco DSUs respecting the listed shares of Bco ("Bco Shares"), a subsidiary of Aco; and Cco DSUs respecting shares of one of the two classes of shares of Cco, a wholly-owned subsidiary of Aco ("Cco XX Shares"). The number of DSUs allocated to a Participant and the value of those units is recorded in a notional "Account" for the Participant. The number of DSUs allocated to a Participant is calculated based on the dollar value of the Participant's deferred compensation allocated to the applicable DSU divided by the applicable share price in respect of Aco DSUs or Bco DSUs and the fair market value of a Cco XX Share in respect of a Cco DSU. Conversions between Aco DSUs, Bco DSUs and Cco DSUs are permissible in conjunction with a change of the Participants' responsibilities or subject to the approval of the Committee. Additional Aco DSUs, Bco DSUs or Cco DSUs are awarded based on dividends attributable to the underlying notional shares.

Creation of DSUs on tracking shares

Aco wishes to create "Dco DSUs" to assist in further aligning employees' interests with those investors who hold LP units of Subject LP, which indirectly owns and operate businesses throughout the world, whose units are listed, whose general partner is a wholly-owned subsidiary of Aco and which is managed by Aco and affiliates of Aco. Accordingly, the Plan will be amended to create the Dco DSUs, whose value will depend on the value of one of the two classes of shares (the "Dco XX shares") of DCo, a newly-incorporated wholly-owned subsidiary of Aco. The value of the XX shares of Dco will depend, in turn, on the value of the limited partnership units of Subject LP. The Dco XX shares are non-voting, participating with the voting Dco shares and redeemable and retractable for an amount equal to the fair market value of a Subject LP unit. Aco will subscribe for Dco XX shares, and Dco will use the subscription proceeds to purchase, on the open market, one Subject LP unit for each Dco XX share that Dco so issues.

Conversions

Subject to the prior approval of the Committee, current DSU holders may convert their existing DSUs to Dco DSUs, and Dco DSUs may be awarded from time to time to group employees. Periodically (e.g., once a year), Dco DSUs may be converted into Aco DSUs, Bco DSUs or Cco DSUs.

Rulings

The proposed amendments will not, in and of themselves, result in the Plan ceasing to satisfy Reg. 6801(d); and no amount will be included in a Participant's income under s. 5(1) or 6(1)(a) solely as a consequence of the grant of Dco DSUs or the conversion of Aco DSUs, Bco DSUs or Cco DSUs into Dco DSUs.

In order that the Corporation's liabilities will not fluctuate with the value of the "Deferred Payment Units" ("DPUs") held by participants, the Plan will be amended to provide that a DPU payment may be made to a participant by the issuance of one common share of the corporation for each whole DPU in the alternative to cash settlement, in the discretion of the Board.

Ruling that such amendment will not result in a disposition by participants or income inclusions under s. 5 or 6.

Plan with deferred stock units and 3-year bonus deferral profit sharing units "Beneficiary" means a dependant or relation of a Participant who, on the date of the Participant's death, is the individual who has been designated as the Participant's beneficiary under the Plan in accordance with applicable law, or where no such individual has been validly designated by the Participant, or where the individual does not survive the Participant, the Participant's legal representative.

underline;">: Election. Executives, who otherwise would be entitled to receive annual cash award under the short-term incentive plan (STIP) of the Corporation, which is a listed public corporation, may elect to participate in the Corporation's deferred share unit plan (the Plan) by giving a written notice by the last day of the fiscal year preceding the fiscal year to which the election is applicable. The election specifies the fixed dollar amount, or fixed percentage of the STIP cash awards otherwise receivable by the Executive for the applicable fiscal year which (subject to the discretion of the Compensation Committee not to award DSUs) will be applied to credit DSUs to the Executive's DSU account, based on the "Market Value" (5-day trailing VWAP) of the Corporation's shares on the 10^th business day following the release of the Corporation's financial statements for the particular fiscal year. The election may be changed or revoked on the same prospective basis.

Dividends

The DSU account will be credited with additional DSUs for cash distributions that would have been received if the DSUs were shares, based on the Market Value on the payment date.

Settlement

No amount is payable to an Executive prior to his or her "Termination Date" (ceasing with the Corporation or any affiliate). Settlement (by the Executive or a Beneficiary) is permitted within the following year. "The Market Value of the DSUs credited to the Executive's DSU Account as at the Settlement Date will be paid to the Executive as a lump sum in cash, after deduction of any applicable… source deductions… ." Beneficiary" is defined as "a dependant or relation of an Executive who, on… the Executive's death, is the individual who has been designated as the Executive's beneficiary under the Plan in accordance with applicable law, or [otherwise]… the Executive's legal representative."

Rulings

• The Plan will not constitute a salary deferral arrangement… pursuant to paragraph 6801(d)… .
• Provided that the Plan remains unfunded, the Plan will not constitute a "retirement compensation arrangement"… .
• No amount will be included in the income of any Executive…solely as a result of the crediting of DSUs to an Executive's Account… .
• Amounts received under the Plan by an Executive who is a resident of Canada at the time of receipt, including any… source deductions, will be included…pursuant to subsection 5(1)… in the year of receipt.
• Amounts received under the Plan, by an Executive who is not a resident of Canada at the time of the receipt, to the extent the amount is attributable to services performed in Canada and, if the Executive was resident in Canada at the time he or she performed the services, outside Canada, including any amounts withheld in respect of taxes and other source deductions, will be included in the income of the Executive pursuant to subsection 5(1) and subparagraph 115(1)(a)(i)… .
• All amounts payable under the Plan to the Beneficiary… will constitute a right or thing… for purposes of subsections 70(2) and 70(3)… .
• …[P]ayments by the Corporation or an Affiliate…will be deductible… for the year in which the payment is made… .

Favourable ruling with respect to a deferred share unit plan under which directors can elect to receive all or a portion of their quarterly compensation in the form of deferred units based on the market price for the company's shares but with a provision for the crediting of additional deferred units when dividends were paid on the corresponding shares, and with a further provision that the company may make payment of the deferred units in treasury shares, shares purchased on the market or cash less (in all cases) any applicable withholding taxes.

"Beneficiary" means an individual who, on the date of a Participant's death, is the person who has been designated in accordance with the Plan and the laws applying to the Plan to receive the value of the Deferred Share Units standing to the credit of the Participant on the date of death, or where no such individual has been validly designated by the Participant, or where the individual does not survive the Participant, the Participant's legal representative. … the Company shall make a payment in cash, … to or for the benefit of the Beneficiary of the Participant.

Plan with deferred share units and 3-year bonus deferral restricted share units. "Beneficiary" means any person designated by a Participant by written instrument filed with the Corporation to receive any amount, securities or property payable under the Plan in the event of a Participant's death or, failing any such effective designation, the Participant's estate; … DSU Account shall be redeemed and paid by the Participant's Employer to the Participant or the Participant's Beneficiary, as applicable.

Favourable ruling respecting a deferred unit plan for independent directors of a public company (including non-residents) where they have a choice between being paid deferred units in cash or in shares.