RCA payment made to taxpayer’s ex-spouse was treated as “remuneration” to such recipient for source deduction purposes even though it was income only to the taxpayer

A distribution coming out of retirement compensation arrangement (RCA) that was generated in respect of the taxpayer’s employment but paid pursuant to a court order or separation agreement to the taxpayer’s former spouse constituted income to the taxpayer pursuant to s. 56(1)(x) even though received instead by the former spouse (in whose hands it was excluded from income pursuant to s. 56(1)(z)(ii).)

However CRA indicated that for source deduction purposes it was the payee of this “remuneration” (the former spouse), who was thus the “employee” for source deduction purposes, so that the amount of the source deductions under Reg. 101 was to be computed on this basis, and the amounts withheld were to be remitted for the account of the former spouse.

CRA recognize that this produced a “misalignment,” i.e., tax likely would be payable by the taxpayer (who have no amount to report on account of the income tax withheld for the year on the RCA Payment) and, conversely, the former spouse likely would be able to claim a refund when filing his or her return.

Under Reg. 200(1), a T4A-RCA Form was required to be issued to the former spouse in respect of the RCA Payment (i.e., effectively, to the wrong individual).

Neal Armstrong. Summaries of 8 January 2025 Internal T.I. 2024-1032871I7 under Reg. 100(1) – remuneration – (b.1) and s. 56(1)(x).