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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear XXXXXXXXXX
RE: Retirement Compensation Arrangement ("RCA")
This is in response to your letter of April 29, 1993, in which you ask questions concerning the use of letters of credit held by a trustee to fund an RCA.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. However, if you ask for an advance ruling, we wish to point out that your request may be refused where the transaction is to be completed at some indefinite future time. This is a longstanding position of the Department and it is stated in paragraph 14(c) of the Information Circular. The foregoing comments are, therefore, of a general nature only, and are not binding on the Department.
A letter of credit is a non-negotiable order in writing from a bank, which authorizes the payment of a sum of money to the person named in the letter. It is our view that a payment by a bank to an RCA, to pay a benefit under a letter of credit issued by the bank is a payment (contribution) on behalf of the employer. In addition, we are of the opinion that a payment made directly to a beneficiary under a letter of credit, held by a trust to fund an RCA, is a payment (contribution) on behalf of the employer to an RCA trust and at the same time a distribution made out of an RCA trust.
In answer to a question of the 1992 Canadian Tax Foundation Revenue Canada Round Table on RCAs, the Department confirmed that an employee will not be subject to tax under Part 1 of the Income Tax Act in respect of a letter of credit held by a trust to fund an RCA as long as no distribution is made out of the RCA trust to the employee . This is the case, notwithstanding that the employee may be the named beneficiary under the letter of credit.
As indicated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, the above comments do not constitute an advance income tax ruling and are not binding on the Department. We trust the above comments will be of assistance to you. If you have any other questions do not hesitate to contact us.
for DirectorFinancial Industries DivisionRulings Directorate
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