24 January 1992 External T.I. 9133345 F - RCAs

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)

January 24, 1992

Dear Sirs:

Re:  Retirement Compensation Arrangements (RCAs)

This is in reply to your letter of November 29,1991 requesting our comments with respect to the payment of certain amounts to employees through an intermediary trust.

In general terms, the provisions of the Income Tax Act (the "Act") pertaining to RCAs apply to any arrangement whether contractual or otherwise where contributions are made by an employer, a former employer or a person who is not at arms length with the employer to a custodian in connection with benefits that are to be paid to a former employee on retirement or loss of employment except in specific excluded situations.  The Act does not specify that the contributions must be held for any period of time for the RCA provisions to apply nor does it provide that the parties to the arrangement may treat the payment in any other manner such as some other form of remuneration. 

In consequence, we can not concur with your view that refundable RCA tax would not be exigible in the circumstances outlined by you on the basis of the facts detailed.  However, if, in addition to the circumstances provided, it could be demonstrated that the trustee is acting only in an agency capacity for the employer and the funds do not become property of the trustee in accordance with the applicable trust laws, we could concur with your position that the arrangement would not be an RCA solely on the basis of the scenario outlined.  Similarly, if the trustee receives the contributions as the agent of the employee or at the employee's direction we would concur that the arrangement is not an RCA provided the establishment of the trust is not part of an encompassing arrangement.  In this case the amount would be fully taxable to the employee on receipt by the trust.

While on the basis of the Act an RCA may arise in circumstances where funds are immediately transferred out of the hands of the custodian there may be circumstances when the Department's Assessing Directorate may wave the application of the RCA provisions on an administrative basis and at their discretion.  To determine if in a particular situations such relief is available, a taxpayer would have to submit full details to his local District Taxation Office for consideration.

We trust these comments will be satisfactory to your needs.

Yours truly,

for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental  Affairs Branch