5 September 1990 Internal T.I. 901619 F - Contributions and Recontributions to 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.

September 5, 1990

Dear Sirs:

Re: Contributions and Recontributions to "existing" and  "statutory" Retirement Compensation Arrangements ("RCAs")

This is in reply to your letter of July 16, 1990 wherein you requested we confirm your understanding with respect to recontributions to an existing and statutory RCA where the existing RCA would otherwise qualify as an Employee Benefit Plan (an "EBP").

It is your understanding that a recontribution to an existing arrangement after December 31, 1987 would be deemed to be property held in connection with a statutory arrangement.  As a result, Part X1.3 of the Income Tax Act (the "Act") would apply to the recontribution and any income derived from it.  It is your understanding that the rules effectively restrict the growth in value of the existing arrangement.  It is your final understanding that the existing arrangements would be inter vivos trusts and subject to taxation as such.

We generally concur with your understanding.  However in respect of our comments at the 1985 Canadian Tax Foundation Conference we would like to clarify that amounts received by an employer which must be recontributed by him under the existing arrangement will be taxable as income even though they are not deductible to the trust. The recontributions would also be subject to the withholding provisions of paragraph 153(1)(p) of the Act.  In addition, although any further payments to the employer from the plan will be deemed to be paid first out of the RCA pursuant to paragraph 56(10) of the Act (and therefore included in the employer's income pursuant to paragraph 12(1)(n.3) of the Act to the extent that they are from the RCA), the amounts, as part of a series of payments and refunds of contributions under the RCA, will not apply to reduce the amount of refundable tax otherwise payable by the RCA pursuant to paragraph 207.5(1)(c) of the Act.

Taxation of the existing arrangement will be governed by the rules for EBPs and as such it will be taxed as an inter vivos trust using the provisions set out in section 122 of the Act.

We trust our reply is satisfactory to your needs.

Yours truly,

for Director Financial Industries DivisionRulings Directorate