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: Would a plan that allows its Trustees the discretion of making payments to an employee prior to termination be considered an RCA?
Reasons: A plan that includes a provision that permits the trustees of the plan to make payments to an employee prior to termination, where there is no substantial change in the services rendered by such an employee, would not qualify as an RCA.
XXXXXXXXXX Karen Power, CA
March 1, 2002
Re: Retirement Compensation Arrangement
This is in reply to your letter of January 22, 2002, requesting our comments on whether the addition of a discretionary provision to a retirement compensation arrangement ("RCA") would affect the taxation of such an arrangement. The discretionary provision would allow a trustee the discretion to make a payment to an employee prior to the employee's termination of employment.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4 entitled Advance Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the CCRA.
An RCA is defined in subsection 248(1) of the Income Tax Act (the "Act") to be a plan or arrangement under which contributions are made by an employer or former employer of a taxpayer to another person (a "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 technical notes to the 1987 Department of Finance Notice of Ways and Means states that an RCA is a plan under which an employer makes payments to a custodian, so that benefits may be paid to an employee after the employee retires or otherwise severs his employment with the employer. In addition to retirement and loss of office, an RCA may exist where benefits are paid as a consequence of "any substantial change in the services rendered" by an employee. The Notice of Ways and Means indicates that this could include circumstances where the employee may not be completely retired. Examples given were:
? former officer continues to be employed on a consulting basis or
? a professional athlete is retained as a scout or coach or for public relations purposes after his playing career is ended.
In our view, although the definition of an RCA plan seems to permit payments from the plan to a taxpayer while such a taxpayer is still employed, such payments would only be permitted where there is a substantial change in the services rendered by the taxpayer. A plan that includes a provision that permits the trustees of the plan to make payments to an employee prior to termination, where there is no substantial change in the services rendered by such an employee, would not qualify as an RCA as defined in subsection 248(1) of the Act. Such a plan, however may qualify as a salary deferral arrangement or an employee benefit plan under the Act.
We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.
Mickey Sarazin, CA
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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