15 April 1997 Internal T.I. 9707227 - RCA, SOLE SHAREHOLDER, 8(1)(M.2)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Would an agreement entered into between a sole shareholder and his corporation satisfy the condition in 8(1)(m.2)(iii)(A) of the Act?

Position:

No

Reasons:

The sole shareholder is responsible for setting the terms of his employment.

		April 15, 1997

REGINA TAX SERVICES OFFICE HEADQUARTERS
A. R. Kellett, Director M.P. Sarazin
(613) 957-3499
Attention: Marilyn Kraine
970722

XXXXXXXXXX - RCA

This is in reply to your Round Trip Memorandum dated March 13, 1997, wherein you requested our views as to whether an amount contributed to a retirement compensation Arrangement ("RCA") by XXXXXXXXXX, in accordance with an agreement (the "Contribution Agreement") between XXXXXXXXXX, would be deductible under paragraph 8(1)(m.2) of the Income Tax Act (the "Act").

Comments

Whether a plan or arrangement constitutes an RCA for purposes of the Act is a question of fact which can only be determined after a review of the terms of the particular plan. Since you did not forward any of the details regarding the RCA, we are not able to provide you with any comments with respect to whether or not an RCA does, in fact, exist.

In computing his income for a taxation year from an employment, a taxpayer may deduct, pursuant to paragraph 8(1)(m.2) of the Act, an amount contributed by him in the year to an RCA where all of the following conditions are satisfied:

(a)the amount is paid to a custodian (within the meaning assigned by the definition of an RCA in subsection 248(1) of the Act) who is resident in Canada;

(b)the taxpayer was required, by the employer's conditions of employment, to contribute the amount; and

(c)the amount contributed to the RCA in the year does not exceed the amounts contributed to the RCA in the year by any other person in respect of the taxpayer.

The determination of whether or not a taxpayer was required, by his or her employer's conditions of employment, to contribute an amount to an RCA would require a review of all of the relevant facts in the particular situation. Where a sole shareholder of a corporation enters into an agreement with his or her particular corporation whereunder the shareholder is required to contribute to an RCA which has been set-up for his or her benefit, we would not consider contributions made by the shareholder to be as a result of the shareholder's terms of employment. We are of the view that, generally, the shareholder would be responsible for setting his or her own terms of employment and, as such, the condition would not be satisfied. Consequently, XXXXXXXXXX contributions to the RCA as required under the Contribution Agreement should not be deductible under paragraph 8(1)(m.2) of the Act because the condition described in (b) above is not satisfied.

We trust the above comments will be of assistance to you.

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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