Employees of a Canadian subsidiary participated in a performance share plan (“PSP”) under which the non-resident public parent (Parentco) contributed funds to a non-resident trust, which purchased shares of Parentco on the open market, and distributed shares (within approximately three years) to the group employees as the shares vested in accordance with the performance conditions of the PSP. Headquarters found that payments made by Canco to Parentco under a “recharge” agreement, equal to the fair market value of shares that were distributed to the Canco employees at the time the previously awarded shares had vested, were generally deductible under s. 9 and that their deduction was not prohibited by s. 7(3)(b), as confirmed by Transalta. Canco originally filed its returns without claiming a deduction for the reimbursement payments but, following the Transalta decision, filed requests (“TPRs”) for adjustments to its returns to allow such a deduction.
Before noting that the PSP might not have been a s. 7 plan (in which case, the prohibition on deductions under s. 7(3)(b) would not have applied even before Transalta), Headquarters stated that whether the TPRs should be allowed:
depends, in part, on whether the TPRs are due to an error or are due to a change in position resulting from the Transalta decision. If it is determined that the TPRs were due to an error … the TPRs for all of the taxation years could be accepted. However, if due to a change in position, we understand that only those TPRs for income tax returns originally filed after the Transalta decision (April 4, 2012) could be accepted.