In response to several enquiries from auditors on the meaning of “agreement” for the purposes of ss. 7 and 110(1)(d), the Directorate first referenced the Placer Dome, Chrysler and McAnulty decisions, and stated:
These cases stand for the proposition that an arrangement to issue or sell shares need not be a detailed written contract to fall within the scope of section 7 or paragraph 110(1)(d), but nonetheless must create legally binding rights and enforceable obligations.
This principle was confirmed in Transalta… .
The Directorate then discussed this issue in the context of various types of plans.
Respecting a discretionary share bonus plan (where “the corporation determines at the end of the [3-year] period the number of shares earned and whether the bonus would be paid in the form of shares issued from treasury or cash equivalent.,” it stated:
Because the corporation’s commitment remains fully discretionary at all times, the arrangement does not give rise to a legally binding agreement for the purposes of section 7. Therefore, where the corporation opts to settle the bonus by issuing shares, paragraph 7(3)(b) does not apply to prohibit the corporation from deducting the bonus expense.
Similarly, a fully discretionary stock bonus plan without a cash option will also fall outside section 7 where the granting of the awards and the issuance of the shares is made concurrently. However, if the eventual issuance of the shares is subject to time or other objective vesting conditions, it is our view that section 7 would apply. …
A share bonus plan that has been designed to avoid the application of paragraph 7(3)(b) (by the inclusion of a discretionary cash settlement option) will also need to… [qualify as a] three-year bonus plans… deferred share unit plan… .
Respecting a SAR or DSU plan, because “there is no agreement to issue shares…[i.e.,] the corporation is free to choose the form in which the payment will be made (which includes cash) [a]ccordingly, paragraph 7(3)(b) will not apply… .