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 Sirs:
This is in reply to your letter of July 27, 1993 concerning letters of credit acquired by a trust governed by a retirement compensation arrangement ("RCA trust").
You ask us to confirm that an amount paid by an RCA trust to acquire a letter of credit would be a distribution for the purposes of paragraph (c) of the definition of "refundable tax" in subsection 207.5(1) of the Income Tax Act.
The answer to your question depends on who holds the letter of credit. If the letter of credit is issued in the name of the RCA trust and is thus held by the trust, it is our view that the RCA has not distributed any of its property. Rather, the transaction represents an exchange of one property having a certain value for another property having the same value. A distribution would occur, however, if the letter of credit is issued in the employee's name and is thus held by the employee. In this latter case, the employee will have received a taxable benefit at that time equal to the fair market value of the letter of credit.
We trust our comments are of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings DirectorateHAA7200-9
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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