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.
Principal Issues: What would be the tax implications of the refundable tax where a portion of contributions under an RCA is considered to be:
1. unreasonable; or
2. an SDA.
Position: In all cases the custodian is the ultimate responsible of the RCA trust's tax account and distribution made under the RCA trust is a question of fact and law.
Reasons: wording of the Act and terms of the agreement.
XXXXXXXXXX 5-980898
Fouad Daaboul
Attention: XXXXXXXXXX
September 23, 1998
Dear Sirs:
Re: Contribution to a retirement compensation arrangement ("RCA") trust
This is in reply to your letter of March 30, 1998, wherein you requested written confirmation concerning the "refundable tax" of a RCA where, following the review of a self-assessed RCA, the Department has determined that some part or all of the contribution under the RCA is either an unreasonable expense of the employer or the arrangement (in whole or in part) is a salary deferral arrangement ("SDA").
As indicated in Information Circular 70-6R3, confirmation of the tax consequences flowing from completed transactions must be obtained from your local tax services office. This Directorate will provide a technical interpretation concerning the provisions of the Income Tax Act (the "Act") and Regulations but not with respect to specific factual or hypothetical transactions. We may, however, provide the following general comments concerning the provisions of the Act, in accordance with the above-mentioned Information Circular, which are not binding on the Department.
An RCA is defined in subsection 248(1) of the Act in general terms as an arrangement under which payments are made by an employer to a custodian in connection with benefits that are to be received by an employee after retirement. Subsection 207.6(1) of the Act deems property held in an RCA to be held in trust with the custodian as the trustee. For purposes of Part XI.3 an "RCA trust" has the meaning assigned by subsection 207.5(1) of the Act. Although the taxable income of an RCA trust is not subject to Part I tax by virtue of paragraph 149(1)(q.1) of the Act, an RCA trust is subject to the 50% refundable tax calculated under subsection 207.5(1) of the Act.
Where a paragraph 20(1)(r) deduction, or a portion thereof, is disallowed pursuant to section 67 of the Act, we are of the view that this disallowance has no impact upon the "refundable tax" calculation of the RCA. The application of section 67 to a particular amount (for example to restrict a deduction) does not lead to an offsetting adjustment (for example to reduce an income inclusion to the recipient of the amount). "Refundable tax" paid by the custodian of an RCA trust could be recovered by making a distribution from the RCA, however any such distribution would be taxable to the recipient under paragraph 12(1)(n.3), 56(1)(x) or (z).
Where a plan or arrangement has been self-assessed as an RCA but is (in whole or part) subsequently reassessed as a SDA, the refundable tax of the RCA will be recalculated on reassessment to reflect only those contributions that are considered to be to an RCA. This may result in an overpayment of the refundable tax. From an administrative viewpoint we are not certain as to whether this overpayment of account would be refunded to the custodian of the RCA or would be considered a withholding of tax under section 153 with regard to the SDA income inclusion. We have forwarded a copy of this letter and your correspondence to the Assessment and Collections Branch of the Department (contact Ed Williams (613) 954-0556) to provide you with some guidance on this matter.
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
??
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1998
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1998
Email this Content