9 October 1990 External T.I. 9019035 F - 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.

Attention: 19(1)

October 9, 1990

Dear Sir:

Re:  Retirement Compensation Arrangements (RCA)

This is in reply to your letter of August 10, 1990 concerning the above mentioned subject. In your letter you stated the following facts; an investment holding company (A Company) had an employee (Mrs. X) who has now retired and is receiving a retiring allowance 24(1) per annum. A Company wishes to purchase an annuity contract from an insurance company to provide Mrs. X with an annuity of 24(1) indexed for inflation for her lifetime. This annuity contract will be purchased in a lump sum for 24(1).

In general we agree with the income tax consequences set out in your letter except as follows:

A Company will be entitled to a refund under subsection 207.7(2) for 1991 and each subsequent year equal to the amount by which the refundable tax of the RCA at the end of the immediately preceding year exceeds the refundable tax of the RCA at the end of the year. Refundable tax of the RCA trust at the end of each year is the aggregate of

a)     50% of all contributions to the RCA

     and

b)     50% of the amount by which the aggregate of the income exceeds the aggregate of losses of an RCA trust from a business or property and capital gains or losses for the year or any preceding taxation year

     less

c)     50% of all amounts paid as distributions during the year other than distribution paid as part of a series of contribution and refunds under the arrangement.

We note that in your calculations of the refundable tax, it does not appear that the refundable tax eligible on the income portion of the annuity payments received by the RCA trust was considered.

We trust the above comments will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate