Parentco funded and administered a performance share plan (“PSP”) for employees of group companies, including Canco (a subsidiary). A PSP award is a conditional award of Parentco shares to be delivered upon vesting, which occurs based on performance conditions which are measured over the subsequent 3-year period. A vested award may be settled in either shares or the cash equivalent, at the discretion of Canco or Parentco. Canco makes reimbursement payments to Parentco pursuant to a recharge agreement for the value of shares distributed to Canco’s employees in satisfaction of vested PSP awards.
Before addressing whether such payments were deductible under s. 32.1 or 9, the Directorate stated:
[P]aragraph 7(3)(b) does not apply to prohibit a deduction for Canco’s PSP expenditures … .. Given the discretionary nature of the method for settling awards under the PSP, a PSP award is not a legally binding agreement to issue shares and thus not an agreement to which section 7 applies.
However, there was insufficient information to determine whether s. 7 could have applied even absent Transalta. The Directorate stated:
[S]ection 7 does not apply where an employer contributes to a trust and the trust uses the contributions to purchase employer shares (or shares of a corporation with which it does not deal at arm’s length) on the open market for eventual distribution to its employees. Instead, the arrangement is subject to the EBP rules.