27 April 1995 External T.I. 9509575 - 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.

Principal Issues:

Fair market value of a letter of credit

Position TAKEN:

Question of fact

Reasons FOR POSITION TAKEN:

5-910245; 7-911275; 5-910611; 7-931974.

			5-950957
XXXXXXXXXX		M. Shea-DesRosiers

Attention: XXXXXXXXXX

April 27, 1995

Dear Madam/Sir:

Re: Retirement Compensation Arrangement (RCA) - Letter of credit

This is in reply to your facsimile of April 6, 1995 concerning the fair market value of an unsecured letter of credit deposited with an RCA trustee.

It is the Department's position that it is the fair market value of the letter of credit acquired by an employer and transferred to an RCA trustee for the benefit of an employee or employees which would be considered as a contribution by the employer to an RCA and which would be subject to the refundable tax under Part XI.3 of the Income Tax Act at the time of the contribution. The fair market value of the letter of credit which is a question of fact depends on factors such as the date the letter of credit becomes payable, the restrictions on payment, the credit worthiness of the employer, the intent of the parties to the transaction.

Please note that the Department does not provide advance income tax rulings on the fair market value of a property nor does it as a general rule predetermine the fair market value of a property in any other context. The determination of the fair market value of a property in the circumstances referred to above is the responsibility of the employer and the RCA custodian. The Department would become involved only after the fact and only if it considered the value assigned to a property to be unreasonable in the circumstances.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch