27 July 1994 External T.I. 9412435 - 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:

Whether a letter of understanding in a Collective Agreement constitutes an RCA.

Position TAKEN:

YES

Reasons FOR POSITION TAKEN:

Meets the requirements of an RCA as defined in 248(1) of the Act.

		5-941243
XXXXXXXXXX	M. Shea-DesRosiers

July 27, 1994

Dear Sir:

Re: Letter of Understanding XXXX (the "Letter")
Retirement Compensation Arrangement ("RCA")

This is further to your facsimile of April 27, 1994 addressed to the Winnipeg Taxation Centre which has forwarded it to us for reply. We apologize for the delay in replying to your letter. All references to statute are to the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the "Act").

You enquire as to whether the letter of your Collective Agreement constitutes an RCA. In previous letters, the Winnipeg District Office informed your Association that the Trust Fund established pursuant to the Letter is an RCA.

An RCA is defined in subsection 248(1) of the Act as an arrangement under which contributions are made by an employer to a custodian in connection with benefits that are to be received on or after retirement of an employee. As presently drafted, the Letter meets the provisions of an RCA as defined in subsection 248(1) of the Act. It is an arrangement under which contributions are made by an employer to a Trustee (the custodian) for the purpose of providing an early retirement supplement to the employees who qualify under the arrangement. Consequently, it is our opinion that the arrangement in question is an RCA since October 1, 1988 and is not a group Registered Retirement Savings Plan.

The following rules apply to such an arrangement.

Although an RCA trust within the meaning assigned by subsection 207.5 (1) of the Act is not subject to Part I tax by virtue of paragraph 149(1)(q.1) of the Act, it is subject to the 50% refundable tax calculated under Part XI.3 of the Act on the contributions to the RCA and the income of the RCA. This tax is payable by the custodian of the RCA.

The contributions paid by the employer under an RCA are deductible to the employer pursuant to paragraph 20(1)(r) of the Act provided that the amounts are not paid as part of a series of payments and refunds of contributions under the arrangement. It should also be noted that any amounts received by the employer under the arrangement are included in the employer's income pursuant to paragraph 12(1)(n.3) of the Act.

Part XI.3 tax is fully refundable when benefits are subsequently distributed by the plan to its beneficiaries. Payments received by an employee or a retired employee from an RCA are included in his/her income. The custodian however is required to withhold tax on payments made out of the plan to a beneficiary at normal rates for salaries.

Detailed explanations of the various responsibilities of an RCA custodian and the calculations of Part XI.3 refundable tax are to be found in the Department's publication entitled Retirement Compensation Arrangement Guide, a copy of which can be obtained at your District Office.

The comments expressed herein do not constitute an advance income tax ruling and as mentioned in paragraph 21 of Information Circular 70-6R2, dated September 28, 1990, they are not binding on the Department. We trust however that they will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate