5 July 1988 Income Tax Severed Letter 5-5997 - [Retirement Compensation Arrangements]

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.

W.C. Harding (613)957-3499

July 5, 1988

Dear Sirs:

Re: Retirement Compensation Arrangements (RCAs)

This is in reply to your letter of April 29, 1988, wherein you requested our comments with respect to your conclusions as to the proper application of the Income Tax Act (the Act), as it pertains to RCAs, in the circumstances of four situations as described by you.

Situation I & II

In general we agree with the comments you have made in respect of these two situations. To clarify, however, it should be noted that "contributions" for the purposes of the refundable tax definition in subsection 207.5(1) of the Act includes any amount that the employer is required to withhold and remit to the Receiver General pursuant to paragraph 153(l)(p) of the Act.

Situation III

In situation III you described circumstances where a corporation establishes a trust to be governed by the provisions of a retirement plan and arranges, outside of the RCA, life insurance policies on its employees who are participants of the plan.

In these circumstances, it is your view that the trust would be considered to be a RCA pursuant to the definition thereof contained in subsection 248(1) of the Act. It is also your view that the life insurance policy interests held by the employer would not constitute a RCA under the definition in subsection 248(1) or under the deeming provisions of subsection 207.6(2) since the arrangement pursuant to which retirement payments are to be paid is otherwise an RCA.

In our opinion subsection 207.6(2) of the Act does not deem or cause a life insurance contract to be an RCA but instead provides that certain rules will prevail where a life insurance policy is used to fund an arrangement if that arrangement is not already an RCA. Where an arrangement is otherwise an RCA the provisions of the Act which govern in general will have application instead.

It is our view that it is possible for an employer to have more than one RCA for an employee. In the situation described by you, it is our view that the life insurance policy is a subject property of an RCA trust under subsection 207.6(1) of the Act that is separate and distinct from the RCA trust created under subsection 248(1) of the Act.

Situation IV

In this case you assumed that an employer would obtain life insurance on employee participants of an RCA for purposes of funding premium payments of life insurance contracts held by a formal trust governed by an RCA.

In these situations you maintain that with respect to the additional life insurance policy interest held by the employer, the provisions of Part XI.3 would not apply and the additional policy interests would not be considered to be subject property of a RCA since the additional policy interests could not reasonably be considered to have been acquired to fund the employer's obligation to provide retirement benefits under the plans.

In our opinion our comments under situation III have equal application and the RCA provisions will have application to the two RCAs evident in the circumstances.

We trust that these comments are satisfactory to your needs.

Yours truly,

for Director Financial Industries Division Rulings Directorate