26 October 1998 External T.I. 9817915 - MEANING OF DISTRIBUTION - RCA

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 an amount paid under an RCA is considered to be a distribution for purposes of withholding tax.

Position: Question of fact.

Reasons: Distribution must meet the terms of the agreement.

XXXXXXXXXX 	5-981791
		Fouad Daaboul
Attention:  XXXXXXXXXX 

October 26, 1998

Dear Sirs:

Re: Meaning of “distribution” under a retirement compensation arrangement ("RCA")

This is in reply to your letter of July 2, 1998, wherein you requested the Department’s views as to whether certain payments made by an RCA trust would constitute distributions out of or under an RCA for the purposes of paragraph 153(1)(q) of the Income Tax Act (the “Act”).

Comments

It appears that the interpretations you seek relate to proposed transactions to be undertaken by specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments.

The term RCA is defined in subsection 248(1) of the Act. Generally, an RCA is a plan or arrangement under which contributions are made by an employer or former employer of the taxpayer to another person in connection with benefits that are to be or may be paid to a person as a result of a substantial change in the services rendered by the taxpayer, the retirement of the taxpayer or the loss of an office or employment of the taxpayer.

The determination of whether any payment out of or under an RCA would constitute a distribution by the RCA trust for purposes of the Act is a question of fact. Where an amount or property is paid to a person as a benefit out of an RCA trust under the terms of the RCA plan or arrangement, the amount paid out would constitute a distribution for purposes of paragraph 153(1)(q) of the Act. This would be the case whether the distribution is made to an employee or former employee who has to include such amounts in income under paragraph 56(1)(x), (y) or (z) of the Act or to an employer who has to include the amount in its income under paragraph 12(1)(n.3) of the Act. Generally, however, a distribution would not include an amount paid by the RCA trust as a capital outlay or expense in respect of property held by the RCA trust.

We trust our comments will be of assistance to you.

Yours truly,

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