Peter K. Noack (613) 957-8963
November 20, 1987
Dear Sirs:
This is with respect to our meeting of April 30, 1987 with you and Mr. Bentley of the Department of Justice, and is in reply to your submissions of that date and by letter dated July 14, 1987 concerning certain orders of the Alberta Court of Queen's Bench and their effect on the above-noted stock purchase plan.
To summarize, the court order:
(1) implied a term in the Agreements to the plan that it was a condition precedent to their having any force or effect that the price of XXX shares be at least 907. of the original purchase price of the shares during the term of the agreements;
(2) declared that accordingly the employees did not acquire shares and did not become indebted to XXX uner the Agreements;
(3) declared that the release given by XXX to its employees in respect of their "indebtedness" to XXX not constitute the foregiveness of a debt.
It is your position that the orders determine the rights and obligations of the company and its employees under the plan and that Revenue Canada can only assess the company's employees based on the courts determination.
In an earlier letter to Mr. H. Ladd you also took the view that, notwithstanding the court order which, in your opinion, clarifies the position that no benefit arose under the agreements, the value of the debts is what a willing purchaser would pay for them in an open market.
We have now received an opinion from the Department of Justice as to whether any reassessment of the company's employees in respect of the foregiveness of the loans must be based on the term implied in the agreement by the order of the court and its declarations.
In their opinion the court orders, while they may operate retroactively as between the parties to the orders, have no retroactive effect with regard to fiscal consequences and do not bind Revenue Canada because it was not made a party to the motions. We agree with that opinion.
Our Audit Applications Division has studied the submission from XXXXXX attached to your letter to Mr. H. Ladd concerning the valuation o the employees' debts and has confirmed their earlier opinion that the value of the indebtedness is its face value reduced by an appropriate discount to arrive at the current value to the employees at the time of the forgiveness.
We have advised our Calgary District Office of our views.
Yours truly,
Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
Ms. C. Bagshaw A/Head, Audit and Expenditures Accounting Finance Directorate Corporate Management Branch Department of National Revenue (Customs and Excise) Ottawa, Ontario K1A OL5