14 July 1993 External T.I. 9310555 F - Retirement Compensation Arrangement

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.

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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Part XI.3 - Technical Interpretation

This is in reply to your letter of April 8, 1993 wherein you requested an interpretation on Part XI.3 of the Income Tax Act («Act»).

Your letter appears to relate to specific proposed transactions with identifiable taxpayers. Where the transactions are proposed, confirmation of the tax implications arising from the transactions should be sought by way of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. While we are unable to comment on the income tax consequences concerning the specific facts described in your letter, the following general comments may be of assistance to you.

Where an employer acquires an interest in a life insurance policy that may reasonably be considered to be acquired to fund benefits to be received by an employee upon his retirement or upon substantial change in services rendered, the arrangement would be subject to the retirement compensation arrangement ("RCA") rules by virtue of subsection 207.6(2) of the Act if it is not otherwise a RCA and is not otherwise excluded from the definition of RCA by any of paragraphs (a) to (l) and (n) thereof. All the facts of a particular situation would have to be considered to determine whether the RCA rules apply or not.

In our view, an employer acquires an interest in a life insurance policy where it is designated as the irrevocable beneficiary of an insurance policy.

We are of the view that where an employee transfers an interest in a life insurance policy to his employer in exchange for a payment by the employer equal to the fair market value of the interest in the policy, the payment is not a retiring allowance. It is rather a proceed of disposition of the interest in the policy for the employee and a payment in capital for the employer.

The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate