5-910906
Dear Sirs:
Re: Stock Appreciation Plan - Request for Technical Interpretation
This is in reply to your letter of April 3, 1991 wherein you requested a technical interpretation relating to a proposal to restructure a stock appreciation plan.
We wish to point out that we do not issue technical interpretations with respect to proposed transactions but do give advance income tax rulings on them provided the procedures for their request are complied with. A proper request entails the provision of all relevant details pertaining to the proposal including an identification of the parties involved, and any related documents.
The procedures for requesting a ruling are discussed at length in Information Circular IC 70-6R2 a copy of which is attached for your reference. In particular, you should note subparagraph 14(d), which indicates that a ruling will not be provided when it contains proposals for alternative courses of action, and paragraph 15 which details the necessary contents of the ruling request.
While we cannot, at this time, provide a ruling,, we can offer the following observations.
A phantom stock appreciation plan or "SAR" may, in certain cases, parallel an actual stock option plan as governed by section 7 of the Income Tax Act (the "ACT") and where it is appropriate, the Department may consider the provisions of section 7 in considering the phantom plan. Nevertheless, such plans are not governed by section 7 but by other provisions of the Act, most notably, the salary deferral arrangement definition in subsection 248(1) of the Act. In administering these provisions, amongst other things, the Department's primary concern is to ensure an arrangement is not primarily for purpose of postponing the taxation of an amount and that no actual or constructive receipt of an amount takes place without proper taxation
When a transaction occurs whereby an arrangement is varied or replaced it is a question of fact and proper valuation to determine if a taxable event has occurred and such a determination may only be made after all facts have been examined. However, in this regard, please note that the Department does not provide rulings with respect to questions of valuation.
We regret that our answer could not be more complete.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate