Parentco (apparently, a non-resident public company) funds and administers 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 (with a view to satisfying the exception in para. (k) of s. 248(1) - “salary deferral arrangement.”) A vested award may be settled in either shares or the cash equivalent, at the discretion of Canco or Parentco. Parentco periodically contributes cash to a custodian (under an arrangement found by the Directorate to be an employee benefit plan). Such funds are used to purchase shares on the open market, with the shares used to settle awards under the PSP as well as other equity-based incentive plans.
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.
In rejecting the deductibility of such payments under s. 32.1 (and before finding that they likely were deductible under s. 9), the Directorate stated:
To be deductible under section 32.1, Canco’s reimbursement payment to Parentco would have to be considered to be a contribution to the EBP by Canco. Given the potentially significant differences in both the amount and timing of the reimbursement payment as compared to the actual contributions made by Parentco … the reimbursement payments are not equivalent to Parentco’s contributions to the EBP, and thus cannot be considered to be a proxy for those contributions.