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:
RCA distributes annuity to retiree.
Position:
254(a) deems no immediate benefit
Reasons:
Legislation
XXXXXXXXXX 962309
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX requesting an advance income tax ruling on behalf of the above noted taxpayers.
Our understanding of the facts and proposed transactions is as follows:
Facts
1.XXXXXXXXXX are hereinafter referred to individually as "Member" and collectively as the "Members".
2.XXXXXXXXXX is a Canadian controlled private corporation within the meaning assigned by subsection 125(7) of the Income Tax Act (Canada) ("Act").
3.Each Member is an individual and is a resident of Canada for the purposes of the Act.
4.XXXXXXXXXX are related pursuant to subsection 251(2) of the Act. XXXXXXXXXX and each of the other Members are not related for the purposes of the Act.
5.Pursuant to certain agreements ("Original Agreements") entered into between XXXXXXXXXX and the Members, XXXXXXXXXX agreed to pay each of the Members certain supplemental pension benefits. The supplemental pension benefits provided for in the Original Agreements were unfunded.
6.Each Original Agreement was amended pursuant to an amending agreement between XXXXXXXXXX and each Member made as of XXXXXXXXXX, hereinafter referred to as the "Plan". The supplemental pension entitlement of XXXXXXXXXX was amended. The Plan effectively replaced the Original Agreement. According to the Plan XXXXXXXXXX agreed to fund the benefits to the Members and these benefits were reduced to the extent of the funding. A copy of the Plan was submitted with the ruling request.
7.The Plan is a Retirement Compensation Arrangement ("RCA") as defined in subsection 248(1) of the Act.
8.Pursuant to the Plan, the Members are entitled to the following supplemental pension payments:
XXXXXXXXXX
These amounts are to be paid in equal XXXXXXXXXX payments and the Member's surviving spouse is entitled to XXXXXXXXXX of these amounts. As at the date of the Plan, XXXXXXXXXX retirement dates were not known and, as a result, the Plan provided for certain adjustments to their entitlement in the event they retired either before or after their anticipated retirement dates.
9.XXXXXXXXXX ("Trustee") has agreed to act, and continues to act, as trustee of the Plan.
10.In accordance with the Plan XXXXXXXXXX has made the following payments, less deductions, to the Trustee:
XXXXXXXXXX
11.Pursuant to section XXXXXXXXXX of the Plan, XXXXXXXXXX is required, on or before XXXXXXXXXX, to direct the Trustee to purchase an annuity or annuities to provide the Members with their entitlements under the Plan. If there are insufficient funds held by the Trustee to purchase such annuity or annuities, XXXXXXXXXX is required to contribute sufficient funds to enable the Trustee to acquire such annuity or annuities.
12.At the present date, XXXXXXXXXX are paid XXXXXXXXXX supplemental pension payments from, and in accordance with, the Plan. XXXXXXXXXX has retired from full-time employment XXXXXXXXXX are retired from their employment with XXXXXXXXXX continues to be employed by XXXXXXXXXX on a full-time basis.
Proposed Transactions
13.XXXXXXXXXX will retire from XXXXXXXXXX
XXXXXXXXXX
14.XXXXXXXXXX will, pursuant to section XXXXXXXXXX of the Plan and on or before XXXXXXXXXX, direct the Trustee to purchase annuity contracts in each of the Members' names which contracts will provide each Member with the supplemental pension entitlement to which he is entitled pursuant to the Plan. You have advised that the annuity contracts purchased will meet the definition of "prescribed annuity contract" at subsection 304(1) of the Income Tax Regulations.
15.On or before XXXXXXXXXX, the Trustee will, pursuant to the Plan, pay all remaining assets held by the Trustee, if any, to XXXXXXXXXX, such that the Plan will contain only a right to the refund of the Part XI.3 tax at the end of the XXXXXXXXXX taxation year.
16.Within 90 days of the Plan's taxation year ended XXXXXXXXXX, the custodian of the Plan will file a return in prescribed form pursuant to 207.7(3) of the Act and will elect therein pursuant to subsection 207.5(2) of the Act to have the Plan's refundable tax at the end of its XXXXXXXXXX taxation year determined in accordance with subsection 207.5(2) of the Act.
Purpose of the Proposed Transactions
17.The purpose of the proposed transactions is to provide for the supplemental pension entitlement of the Members by purchasing annuity contracts for the Members.
18.To the best of your knowledge and the knowledge of the aforementioned taxpayers, none of the issues involved in this ruling request is being considered by a tax services office or taxation centre in connection with an income tax return already filed, and none of the issues is under objection or appeal.
Rulings Given
Provided that the statement of facts and proposed transactions are correct and constitute a complete disclosure of all the relevant facts and proposed transactions, and that the proposed transactions are completed in the manner described therein, our rulings are as follows:
A.Paragraph 254(a) of the Act will apply to the Plan's purchase of an annuity contract in the name of a Member as described in paragraph 14 and no amount will be included in a Member's income as a result of the purchase of such an annuity contract.
B.The purchase of an annuity contract in the name of the Member will not require an amount to be withheld and remitted pursuant to subsection 153(1) of the Act.
C.Annuity payments received by a Member will be included in the Member's income pursuant to subsection 56(1) of the Act in the year received.
D.Subsection 245(2) of the Act will not be applied to redetermine the tax consequences of Rulings A to C above as a result of the proposed transactions described herein, in and by themselves.
The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30, 1992, and are binding on Revenue Canada, Customs, Excise, and Taxation provided that the proposed transactions are completed by XXXXXXXXXX.
Upon filing the T3-RCA return for XXXXXXXXXX, the custodian of the Plan will be entitled, as a result of the election described in paragraph 16, to a refund equal to the refundable tax balance at the end of XXXXXXXXXX, and will also be refunded any amounts remitted during XXXXXXXXXX
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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