4 October 1991 Income Tax Severed Letter

24(1)
                                                   5-911552
                    19(1)                          P. Spice
                                                   (613) 957-8953

October 4, 1991

Dear Sirs:

Re: Salary Deferral Arrangements Paragraph 6801(d) of the Income Tax Act Regulations (the "Regulations")

We are writing in reply to your letter of June 3, 1991, in which you ask for a technical interpretation of the above-noted provision. You describe a "phantom stock plan" which entitles employees to current pre-tax equivalents of dividends actually paid by the employer company on its shares. The entitlement takes the form of a current salary distribution and you ask whether this dividend-equivalent, right would disqualify the plan from consideration as a prescribed plan under Regulation 6801(d). In particular, your concern relates to the phrase "any amount or benefit granted or to be granted for the purpose of reducing the impact, in whole or in part, of any reduction in the fair market value of the shares of the corporation".

In our view, where a phantom stock plan provides a right to or receipt of a current salary distribution triggered by actual dividend payments, this will not, in and of itself, constitute an amount or benefit granted or to be granted for the purpose of reducing the impact of a reduction in the fair market value of the employer's shares.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. Where the particular transactions are completed, the enquiry should be addressed to the relevant District Taxation Office. The foregoing comments are, therefore, of a general nature only, and are not binding on the Department.

Yours truly,

for Director Financial Industries Division Rulings Directorate

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