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.
K.B. Harding (613) 957-2129
November 10, 1987
Dear Sirs:
This is in reply to your letter of September 10, 1987 concerning the application of the Canada - U.S. Income Tax Convention (Convention) to retirement compensation arrangements (RCAs) as proposed in Bill C-64.
As indicated in your letter an RCA, as defined in the proposed subsection 248(1) of the Income Tax Act, is subject to a refundable 50 per cent tax pursuant to Part XI.3 of the Act but is exempt from Part I tax by virtue of paragraph 149(1)(q.l) of the Act if Bill C-64 is passed in its present form. Paragraph 2 of Article XXI of the Convention also provides an exemption from withholding tax on interest and dividends derived by an organization which is "generally exempt from tax in a taxable year" and is "constituted and operated exclusively to administer or provide benefits under one or more funds or plans established to provide pension, retirement or other benefits".
You have questioned whether an RCA will be considered "generally exempt from tax in a taxable year" for purposes of Article XXI in view of the fact that the Part XI.3 tax will be fully refunded to the RCA trust upon payment of the benefits to the employees.
It is our view that the question outlined above should be directed to the Internal Revenue Service since they will be required to grant such an exemption for RCAs which are resident in Canada. It is our view that an RCA will not be considered to be generally exempt from tax in a taxable year since such an organization is subject to tax in the year on any contributions made into the plan as well as on the excess of the income and capital gains over the losses and capital losses earned in the year.
We trust these comments are suitable for your purposes.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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