5 December 1994 External T.I. 9428755 - RCA REFUNDABLE TAX

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 income taxed in an RCA under Part XI.3 reduces the refundable tax payable to the RCA trust.

Position TAKEN:

Yes.

Reasons FOR POSITION TAKEN:

Definition of "refundable tax" in 207.5(1). Where income equals distributions and there are no contributions or losses in the trust, no refundable tax will be paid to RCA trust. But not double taxation as alleged by taxpayer.

XXXXXXXXXX		942875

Attention: XXXXXXXXXX

December 5, 1994

Dear Sirs:

Re: Retirement Compensation Arrangement (RCA)

This is in reply to your letter of November 3, 1994, in which you describe your method of reporting income and distributions out of an RCA and ask us to confirm the proper Part XI.3 tax consequences.

The situation you describe relates to an actual taxpayer and its annual reporting requirements. Advice or information concerning these matters should be obtained from the Winnipeg Taxation Centre which is responsible for handling all RCA remittances, refunds and returns.

Although we cannot provide advice concerning your client's situation, we can provide the following general comments.

The calculation of the RCA refundable tax is set out in the definition of "refundable tax" in subsection 207.5(1) of the Income Tax Act (the "Act"). Where no contributions are made and no losses or capital losses occur, the tax is equal to the excess of 50% of the RCA trust's income over 50% of the RCA trust's distributions. Therefore, if the distributions are equal to the income, there will be no "refundable tax" in the year.

The amount of tax owing, or the amount of refund due to the RCA trust, is the difference between the refundable tax at the end of the previous year and the refundable tax at the end of the year. Therefore, if there was refundable tax at the end of the previous year, in the following year where distributions equalled interest (as in the situation described in the previous paragraph) the RCA trust would owe tax (see subsection 207.7(1) of the Act). If, however, there was no refundable tax at the end of the previous year, there would be no tax owing. If the facts remain as described in your letter, the only year for which your client will be entitled to a refund is in a year where distributions exceed income. This may not occur until the year all property in the RCA trust is distributed and an election is made under subsection 207.5(2) of the Act. For more information concerning this election, please refer to page 9 of the Retirement Compensation Arrangement Guide ("Distribution of Property by an RCA").

Although the foregoing comments are not binding on the Department, we trust they are helpful.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch