19 April 1994 External T.I. 9409045 - RETIREMENT PLAN FOR ATHLETE

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.

Principal Issues:

Whether an athlete's retirement plan can be an RCA.

Position TAKEN:

Maybe - will look at it in context of advance ruling.

Reasons FOR POSITION TAKEN:

To be excluded from definition of RCA, an athlete's plan must be, among other things, an SDA; if it's not an SDA and it otherwise meets the definition of an RCA, then it would be an RCA.

XXXXXXXXXX 940904

Attention: XXXXXXXXXX

April 19, 1994

Dear Sirs:

Re: Retirement Compensation Arrangement (RCA)

This is in reply to your letter of April 4, 1994, and further to your telephone conversation (XXXXXXXXXX/Duff) of March 29, 1994, in which you request our views concerning a proposed retirement package for an athlete.

Your request appears to relate to specific proposed transactions with identifiable taxpayers. As indicated in Information Circular 70-6R2, we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling. If you are contemplating a specific series of transactions, we would be pleased to consider it in response to a request for an advance income tax ruling. We can provide, however, the following general comments concerning the salary deferral arrangement (SDA) and RCA provisions respecting athletes.

An SDA is defined in subsection 248(1) of the Income Tax Act (unless as otherwise stated all references to this statute are to the Income Tax Act S.C. 1970-71-72, c. 63 as amended, consolidated to June 10, 1993 - the "Act") basically as an arrangement under which a taxpayer has a right to receive an amount after the year and one of the main reasons for the arrangement is to postpone taxes payable on his salary. Pursuant to paragraph (j) of the definition, a plan to defer the salary of certain professional athletes is excepted from the SDA definition.

An RCA is also defined in subsection 248(1) of the Act, and basically it is an arrangement by which an employer makes payments to a custodian to fund benefits to be received by the employee after retirement. Pursuant to paragraph (k) of that definition, a plan that is an SDA is excluded from consideration as an RCA. Paragraph (j) of that definition also excludes a plan for an athlete that is, among other things, an SDA but for the exclusion in paragraph (j) of the SDA definition.

We would generally expect that such a plan for an athlete would meet the criteria of an SDA and therefore would be excluded under either paragraph (j) or (k) of the RCA definition. We are prepared, however, to examine this matter in the context of an advance ruling request.

Although our comments are not binding on the Department, we trust they will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate