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:
What is the Department's position on the treatment of an arrangement where the arrangement is structured to meet the definition of an RCA, if funds contributed by an employer are used to secure a loan and the proceeds of the loan are returned to the contributor in the form of another loan.
Position:
If a bona fide RCA exists, there are no restrictions on the types of investments the arrangement can make. Accordingly, where an RCA exists, it can invest in loans to a contributing employer. It is a question of fact whether a bona fide RCA is created in any particular situation.
Reasons:
The function of an RCA is to secure certain obligations of an employer. If the purpose of a series of transactions does not satisfy this function it can not be said that the arrangement is an RCA.
December 11, 1997
Winnipeg Tax Services Office Headquarters
Communications W.C. Harding
(613) 957-8953
Attention: Grete Brunsel
973006
Inquiry of XXXXXXXXXX
Leveraging of Retirement Compensation Arrangements (RCAs)
This is in reply to your facsimile of November 13, 1997, with respect to the treatment of arrangements that are structured as RCAs where amounts held under the arrangement are loaned or used as security for loans to the contributing employer.
In basic terms, an RCA is defined in subsection 248(1) of the "The Income Tax Act (the "Act") as a plan or arrangement under which contributions are made by an employer to another person (referred to as a custodian) in connection with benefits to be provided to employees on or after the employee's termination of services. Where an employer makes a payment to a third party and the funds are effectively returned to the employer, either as a loan or investment in its shares, it is questionable whether the payment was made in connection with benefits to be received on retirement. If an arrangement is not an RCA, payments made by an employer under the terms of the arrangement can not be deducted under paragraph 20(1)(r) of the Act. It is a question of fact whether an arrangement is an RCA or some other form of arrangement.
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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