21 January 2000 External T.I. 9930855 - DESCRIPTION OF AN RCA

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:?

The writer provided a brief description of 5 situations and asked whether they were eligible for an RCA application.

Position:

The writer was provided basic information on RCAs.

Reasons:

It would be a question of fact whether an arrangement established in any of the situations would be an RCA. A basic explanation of what an RCA is was provided to assist in this determination.

XXXXXXXXXX 		1999-000892
W. C. Harding
Attention: XXXXXXXXXX 

January 21, 2000

Dear Sirs:

Re: Retirement Compensation Arrangements ("RCAs")

This is in reply to your facsimile of November 24, 1999, in which you asked if five situations described in your letter were eligible for RCA application.

Since your inquiry relates to specific proposals to establish RCAs in each of the situations described, written confirmation of the tax implications may only be provided by this Directorate where the transactions are the subject matter of advance income tax ruling request(s) submitted in the manner set out in the Department's Information Circular IC70-6R3 Advance Income Tax Rulings. a copy of which may be obtained from your local tax services office or on the Internet at http://www.ccra- adrc.gc.ca/E/pub/tp/706r3et/706r3e.txt.html. Accordingly, we cannot provide answers to your inquiry at this time. However, we can offer the following general comments.

An RCA is defined in subsection 248(1) of the Income Tax Act (the "Act"). The definition provides that an RCA is a plan or arrangement under which contributions (other than payments made to acquire an interest in a life insurance policy) are made by an employer or former employer of a taxpayer, or by a person with whom the employer or former employer does not deal at arm's length, to another person or partnership referred to as the "custodian") in connection with benefits that are to be or may be received or enjoyed by any person on, after or in contemplation of any substantial change in the services rendered by the taxpayer, the retirement of the taxpayer or the loss of an office or employment of the taxpayer. The provision then excludes from this definition a number of exceptions which are, in general, considered elsewhere under the provisions of the Act. The definition then indicates that an RCA will also include an arrangement where a person (i.e., the employer) holds property in trust and the arrangement would be an RCA if the property were held by another person.

Other provisions in Part XI.3 of the Act may also apply to extend the definition of an RCA to certain interests in life insurance contracts.

The primary elements of the RCA definition are:

• payments must be made by an employer, former employer or a person related to the employer;
• the payments must be made to another person or a partnership; and
• the payments must be made in connection with the funding of benefits that are to be received by anyone as a result of any substantial change in, termination of or loss of an office or employment of an employee.

Each of these factors must be considered in respect of the five situations you described. In particular we would emphasis that an employer-employee/officer relationship must exist in each case and the benefits that are to be funded must result from that employment or office. In general, RCAs are designed to provide funding for unregistered pension benefits or retiring allowances. They cannot be used to fund an employee's personal retirement savings or to defer the taxation of income that the employee might otherwise be entitled to receive such as an excess amount receivable on the commutation of a registered pension plan. Note that there is no tax deferral on funds contributed to or earned in an RCA and, although there is a deduction available to the employer for its contribution, it must be a reasonable amount in accordance with section 67 of the Act. Furthermore, employee contributions are only deductible if the arrangement is a pension and only to the extent that the employee's terms of employment require the contribution and a matching amount is contributed by the employer.

We trust these comments will be of assistance to you.

Yours truly,

P. Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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