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.
Principal Issues: The taxpayer requests our opinion regarding whether the CRA will permit a refund of the refundable tax in the situation outlined in their correspondence.
Position: There would be no entitlement to a refund of refundable tax.
Reasons: There would simply be a change of the custodian of the RCA. This does not result in the termination of the RCA itself (or a distribution from the RCA).
XXXXXXXXXX
2013-051106
K. Podor
July 7, 2014
Dear XXXXXXXXXX:
Re: Change in custodian of a retirement compensation arrangement ("RCA")
This is in reply to your correspondence dated October 30, 2013 in which you outline a proposal to address a perceived problem that arises due to the lack of a mechanism in the Income Tax Act (the "Act") to prevent a build-up of refundable tax under a RCA trust in situations where the retirement benefits are secured by way of a letter of credit held by the RCA trust. In order to recover the refundable tax, the employer proposes to allow the existing letter of credit to expire and then wind-up the RCA trust. It would then establish a new RCA trust that would acquire a new letter of credit to secure the members' promised benefits. You ask whether the Canada Revenue Agency ("CRA") would permit a refund of the refundable tax in this situation.
Our Comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (the "Act") and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, "Advance Income Tax Rulings".
In our view, the RCA trust would continue to exist in this situation. There would simply be a change of the custodian of the RCA trust. Since this does not result in the termination of the RCA trust itself (or a distribution from the RCA), there would be no entitlement to a refund of refundable tax.
We trust our comments will be of assistance.
Lita Krantz, CPA, CA
for Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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