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:
Assistance in completing T3-RCA
Position:
Comments on RCA income inclusion for purposes of Part XI.3 tax.
Reasons:
Confirmed that market value of investments irrelevant to income calculation and that administrative expenses incurred by RCA cannot be deducted from income.
April 30, 1997
WINNIPEG TAXATION CENTRE HEADQUARTERS
William Reich P. Spice
Director (613)957-8953
Attention: Ms Pearl Fedick
RCA Unit
970674
Calculation of Refundable Tax for Retirement Compensation Arrangement
XXXXXXXXXX Request of February 25, 1997
This is in reply to your facsimile transmission of March 11, 1997, in which you enclosed a copy of the above-referenced facsimile transmission. As already confirmed with XXXXXXXXXX (telephone conversation of March 21, 1997 with Patricia Spice of this office) since the questions concern the completion of form T3-RCA (the "Form") on behalf of an existing retirement compensation arrangement ("RCA") we will provide our comments to you. XXXXXXXXXX also referred to an administrative position taken by your office in respect of the subsection 207.5(2) election and we advised her that since we only interpret the provisions of the Income Tax Act (the "Act"), any administrative position must be confirmed by you.
FACTS
In the situations described by XXXXXXXXXX, the RCA is established with a $2000 contribution on January 1, 1996, and in 1996 the RCA earns interest income of $200, or is allocated (as a beneficiary of a segregated fund) a realized capital gain of $100.
The RCA is charged an administrative fee of $150 for the cost of completing all forms, providing actuarial valuations, and the like. XXXXXXXXXX also indicates that where the RCA has an investment in a segregated fund of an insurance company the market value of the investment at the end of 1996 has increased from $1000 to $1200. In an alternative scenario, it asks the Department to address the situation where the investment in the segregated fund has decreased from $1000 to $600.
With respect to the contribution of $2000, the refundable tax of $1000 should be remitted to the Department in accordance with paragraph 153(1)(p) of the Act and paragraph 103(7)(a) of the Income Tax Regulations. The amount of $2000 would be entered on line 07 of the Form and the refundable tax of $1000 would be entered on line 10 of the Form.
Interest income is an amount of income from property that is entered on line 11 of the Form and the capital gain, whether realized by the RCA or realized by the segregated fund and allocated to the RCA, is entered on line 12 of the Form. With respect to the interest income of $200, the refundable tax on line 18 of the Form would be $100; the refundable tax in respect of an allocated capital gain of $100 would appear on line 18 of the Form as $50.
The administrative fee which is charged to the RCA is not an expense of earning income from business or property and is not properly deductible from the income of the RCA. For general information on deductions allowable in calculating a trust's net income, please refer to the 1996 T3 Guide and Trust Return.
If the RCA had a capital loss from the disposition of capital property, or if a capital loss was allocated to it by the segregated fund, it would be entered on line 15 of the Form.
However, the increase or decrease in the market value of the RCA's investment in the segregated fund is not reflected in the Form and is not relevant to a calculation of the refundable tax under Part XI.3 of the Act.
XXXXXXXXXX referred also to Question 8 on page 2 of the Form. An RCA which is established to provide pension benefits in excess of those permitted to be provided by a registered pension plan under the Act is not considered part of a combined plan. To answer their question, a registered pension plan is not an employee benefit plan as defined in subsection 248(1) of the Act.
We trust this will assist you in replying to XXXXXXXXXX.
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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