18 June 1992 Income Tax Severed Letter 9217895 - RCA and Merging not for Profit Entities

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

SUBJECT: RCA AND MERGING NOT FOR PROFIT ENTITIES SECTION: 248(1), 87(2)(j.3)]

• 5- 921789 D. Duff (613) 957-8953 Attention: 19(1)

June 18, 1992

Dear Sir:

This is in reply to your letter of May 8, 1992 to Ms Allison Day, of the Winnipeg Taxation Centre regarding the treatment of retirement compensation arrangements ("RCAs") held by 24(1)

During a telephone conversation with 19(1) on June 11, 1992, he indicated that you wanted to know if the funds in the RCAs should be paid out to the beneficiaries as a result of the merger or could they be retained and held by the 24(1), and what would be the tax effects of the mergers with respect to the RCAs. As explained to 19(1) whether or not the funds should be paid out is not an Income Tax matter and would depend on the terms of the various contracts under which the funds are held. Furthermore, your situation deals with specific proposed transactions and should be the subject of an advance income tax ruling submitted in accordance with Information Circular 70-6R2. However, we can offer the following general comments.

A RCA is defined in subsection 248(1) of the Income Tax Act ("Act") basically as an arrangement under which payments are made by an employer to a custodian in connection with benefits that are to be received on retirement. Also, funds set aside and held by the employer for the employee can be considered to be held in a RCA. Subsection 207.6(1) of the Act deems property held in a RCA to be held in trust with the custodian as the trustee. Employees, who are beneficiaries of a RCA, are basically beneficiaries of a trust. If the employer is also the trustee a merger will result in a new trustee but if there is a separate person acting as trustee the merger would have no effect. Under either case the beneficiary should not be affected provided the RCA trust agreement has not been changed.

The Income tax provisions related to amalgamations in section 87 are only relevant to the merger of two or more taxable Canadian corporations and would not apply in your situation. Nevertheless, where there has been an amalgamation of two or more taxable Canadian corporations the new amalgamated corporation is deemed by paragraph 87(2)(j.3) to be a continuation of the predecessor corporation for RCA purposes. Generally this means that the new amalgamated employer is a continuation of the predecessor employers for purposes of amounts returned to the employer from the RCA. Although there are no provisions in the Act for the merger of non-profit entities the Department would generally take a similar position.

We trust our comments are satisfactory.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate