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:
A letter of credit called in an RCA; is it a contribution and what amount of Part XI.3 tax is owing.
Position TAKEN:
Amount of letter of credit is a contribution by employer and the employer is liable for an equal amount of Part XI.3 tax.
Reasons FOR POSITION TAKEN:
legislation
5-941889
XXXXXXXXXX D. Duff
Attention: XXXXXXXXXX
September 14, 1994
Dear Sirs:
Re: Letter of Credit in a Retirement Compensation Arrangement ("RCA")
This is in response to your letter of July 18, 1994, requesting our opinion on the consequences resulting from a letter of credit held in an RCA trust being called by the trustees.
In our opinion the payment by the issuer of the letter of credit to the RCA trust is a contribution by the employer to the RCA. When such an event occurs the employer is liable for an equal payment in respect of Part XI.3 tax which should have withheld pursuant to paragraph 153(1)(p) of the Income Tax Act ("Act"). Pursuant to subsection 227(8.2) the employer is liable to pay an amount equal to the amount contributed to the RCA where there was no compliance with the withholding provisions in paragraph 153(1)(p) of the Act, and the employer can be assessed in this regard pursuant to subsection 227(10) of the Act. This position is stated on page 5 of the RCA Guide.
Paragraph 20(1)(r) of the Act provides a deduction to an employer for contributions paid into an RCA in the year. Payments by the issuer of the letter of credit are considered contributions made by the employer and remittances by the employer, pursuant to subsection 227(8.2) of the Act, are deemed to be contributions and payments in respect of Part XI.3 tax.
The custodian's responsibilities, as listed in section 207.7 of the Act, are to file a return and remit any Part XI.3 tax owing or claim a refund. These determinations would be based on the contributions and Part XI.3 remittances made or deemed to have been made in the year.
If the amount was paid to the beneficiary in the same year, the trustee has a responsibility to withhold on the distributions pursuant to paragraph 153(1)(q) of the Act. It is receiving the contributions referred to in paragraph 153(1)(p) of the Act so has no responsibility regarding the withholding in respect of those amounts, however, it still must file a return and pay any amount owing as stated above.
We trust this is satisfactory.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch
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