15 September 1992 Income Tax Severed Letter 9221595 - RCAs - Bank Deposits Held to Fund Retirement Payouts

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.

5-922159
W.C. Harding
24(1) (613) 957-8953

Attention: 19(1)
September 15, 1992

Dear Sirs:

Re: Retirement Compensation Arrangements (RCAs)

This is in reply to your letter of March 20, 1992, addressed to the Toronto District Office, regarding the above-noted subject matter. Your letter was referred to us for reply.

Since the subject of your enquiry appears to relate to an actual situation we are unable to provide you with any specific comments at this time. Confirmations of the tax implications in a particular situation may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in the Department's Information Circular 70-6R2. On the other hand, if the transactions are already completed, enquiries with respect to them can be submitted to the relevant District Taxation Office for the Department's comments but only when they are submitted with all particulars including the identifications of the parties involved.

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While we are unable to address your specific situation, we can offer you the following general comments which may or may not apply in your case.

An RCA will arise when a "contribution" is made by an employer for any of the purposes set out in the definition of an RCA found in subsection 248(1) of the Income Tax Act (the "Act"). The pledging of property as security for an RCA would constitute such a contribution and it is also possible that the simple setting aside of assets such as cash in a separate bank account will be enough to create an RCA if the purpose of the account is identified as being to fund obligations under an RCA. In other words, if any of the assets of the employer have been set apart from the assets that are available to the employer to fund operations or satisfy creditors, a contribution to an RCA can be considered to have occurred.

If an RCA exists, it is the responsibility of the contributing employer to withhold and remit tax on the contributions. Further details on an employers obligations may be found in the Department's Retirement Compensation Guide, a copy of which is enclosed. It will also be the responsibility of the employer to remit annual returns for the RCA if it is also acting as the custodian of the RCA property. Particulars on these obligations may also be found in the attached guide.

The rules proposed by the Department of Finance in their release of May 24,1991, are expected to apply to any pension or retirement arrangement whether or not it is an RCA, unless it is specifically excluded from the provisions. If an RCA is fully funded it is intended that it will be exempted from the rules. Similarly, any plans of tax exempt employers will be exempted where benefits under the plans are wholly payable within 5 years of the termination of employment. A copy of the above noted release is enclosed for your review together with a related release dated February 14, 1992.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate

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