23 September 1999 External T.I. 9913825 - PARTIAL FUNDING OF RETIREMENT BENEFITS

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:

Is an arrangement that is partially funded an RCA in total?

Position:

This would generally be the case but there may be exceptions where an RCA is part of another plan. In this case, subsection 56(10) of the Act would have application to deem the RCA to be a separate arrangement and to specify the order of payments out of the plan.

Reasons:

Wording of the RCA definition.

xxxxxxxxxx 991382
W. C. Harding
September 23, 1999

Dear Sir:

Re: Retirement Compensation Arrangements (“RCAs")

This is in reply to your letter of May 19, 1999, in which you requested our opinion on whether an arrangement would be an RCA if the arrangement is partially funded.

In your letter you asked us to consider a situation where an employee enters into a deferred compensation arrangement with an employer under which the employee agrees to defer receipt of certain amounts of salary that would otherwise be payable to the employee until subsequent years. You note that part of the amount deferred would be funded through a trust while the remainder would be unfunded. You also note that different payout options would apply to each portion. You then asked us to assume that the arrangement would not be a "salary deferral arrangement" (an "SDA") as defined under the Income Tax Act and that the funded portion of the arrangement would be an RCA.

We must first note that the situation described appears to relate to an existing or proposed transaction. If it is a proposed transaction, written confirmation of the tax implications inherent in the situation may only be given by this Directorate when the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. On the other hand, if it is an existing situation your enquiries must be directed to your local tax services office for reply. Accordingly, we can not provide any specific answers to your enquiry at this time but can only provide general comments which are not binding on the Department but may be of some assistance.

We must also note that in our opinion it would be inappropriate to assume that an arrangement of the nature you have described is not an SDA. Accordingly for the purpose of this discussion we will only presume that the arrangement is simply one under which an employer has agreed to provide benefits to an employee on or after the employee's termination of employment.

In its simplest terms, the preamble to the definition of an RCA in subsection 248(1) of the Act basically provides that an RCA is an arrangement under which contributions are made by an employer to another person in connection with benefits that are to be provided on or after an employee's loss of employment. In most instances both the benefits to be provided to an employee and the funding of those benefits, are established within the same arrangement. Accordingly if the arrangement provides for partial funding of the benefits the arrangement will be an RCA in its totality.

We trust this is satisfactory to your needs.

Yours truly,

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