13 September 1993 Income Tax Severed Letter 9322985 - RCA Letter of Credit

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.

                                           932298
XXXXXXXXXX                                 P. Spice
                                           (613) 957-8953

Attention: XXXXXXXXXX

September 13, 1993

Dear Sirs:

Re: Retirement Compensation Arrangements ("RCAs")

This is in reply to your letter of August 9, 1993, and further to your letter of June 25, 1993 and our reply thereto of July 28, 1993. You have asked us to reconsider our response given a change in the ownership of the letter of credit from the employer to a trust, but where the employer is obligated to the issuer of the letter of credit as previously described.

Where the employer established a trust and contributes cash to the trustee in the amount equal to the fee charged by the bank for issuing a letter of credit to the trust, the amount of the contribution to the RCA will be the total of the cash payment to the trustee plus the 50% refundable tax remitted to the Department. (See Department's answer to Question 48 of the Canadian Tax Foundation 1992 Conference Report).

We confirm that our answers concerning the first two described situations in your letter of June 25th would not change. Where the employer contracts with the bank to prepay the face value of the letter of credit upon demand, and where the parent corporation of the employer guarantees the employer's contractual obligation, no separate contribution will be considered to have been made to the RCA. A promise to pay under a contract and an unsecured guarantee do not constitute contributions.

With respect to the last two described situations in your letter of June 25th, we reiterate that there is a contribution to the RCA where, in order to secure any liability it may have under the letter of credit, assets are pledged by the employer so that they are no longer available to the general creditors of the employer. The amount of such a contribution would be determined by the employer and the RCA custodian, and subject to review by the Department.

We trust the foregoing comments are helpful.

Yours truly,

for Director Financial industries Division Rulings Directorate