13 June 2001 External T.I. 2001-0083575 - REFUNDABLE TAX ON 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: Can refundable RCA tax be accessed to pay benefits under an RCA?

Position: Not until a distribution is made from the RCA, or if the RCA makes a valid election under subsection 207.5(2).

Reasons: No other mechanism under the legislation.

XXXXXXXXXX        2001-008357
S. E. Thomson
June 13, 2001

Dear XXXXXXXXXX:

Re: Refundable tax of a retirement compensation arrangement (an "RCA")

We are writing in response to your telephone call to Ms. Gaby Lesperance of the Winnipeg Taxation Centre on May 8, 2001. Your client is the beneficiary of an RCA that holds a life insurance policy. The policy has only a small remaining cash value sufficient to maintain the premiums to provide for the death benefit. However, the refundable Part X1.3 account is large enough to pay benefits to the RCA beneficiary for several years during his lifetime. You ask if the funds in a refundable RCA account can be refunded prior to the death of the insured in order to provide for RCA benefits during his lifetime, without cancelling the life insurance policy.

While it is not appropriate for the Canada Customs and Revenue Agency (the "CCRA") to provide tax or financial planning advice, we are able to offer the following general comments on the relevant provisions of the Income Tax Act (the "Act"), which may apply. Please note that these comments may not apply to your client's situation, and as such, are not binding on the CCRA.

Where the custodian of the RCA files a return as required by subsection 207.7(3) of the Act, and the refundable tax owing at the end of the preceding year exceeds the refundable tax owing at the end of the current year, the Minister may refund the difference. "Refundable tax" is defined in subsection 207.5(1) of the Act. Generally, where the RCA has made a distribution to a beneficiary, the refundable tax will be reduced by 50% of such distribution.

Notwithstanding the previous paragraph, the custodian may elect under subsection 207.5(2) of the Act to deem an amount to be the refundable tax balance at the end of the current year. To be eligible for this election, all the subject property (if any) of the RCA must consist of only cash, debt obligations, and/or shares listed on a prescribed stock exchange.

Besides the provisions mentioned above, we know of no other mechanism in the legislation to provide for a refund of RCA tax.

We trust that our comments have been helpful.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate

Cc: Gaby Lesperance