30 November 1997 Ruling 9805493 - 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:

Confirmation that Plan is an RCA, that contributions to the RCA trust are deductible to the employer and that there will be no income inclusion for the employees until payments are made to them under the Plan.

Position:

Provided confirmation that Plan is an RCA, that contributions to the RCA trust by the employer are deductible and that employees would not be taxable until they receive payments from the Plan.

Reasons:

Section 248 defines RCA and the Plan submitted qualifies under that definition. Paragraph 20(1)(r) allows a deduction to the employer for contributions made to the RCA trust in the year. Paragraph 56(1)(x) includes in the employee’s income any amount received out of or under an RCA in the year.

XXXXXXXXXX
XXXXXXXXXX 	980549
			XXXXXXXXXX
Attention:  XXXXXXXXXX 

XXXXXXXXXX, 1998

Dear Sirs:

Re: XXXXXXXXXX - Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX, in respect of the above noted taxpayer. We also acknowledge the telephone conversations (XXXXXXXXXX) further to which the plan initially submitted for our review was amended and the corrections thereto sent to our offices by facsimile datedXXXXXXXXXX.

Definitions

In this letter the following terms have the meanings specified:

"Act" means the Income Tax Act;

"Employer"

XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX;

"Pension Plan" means the XXXXXXXXXX;

“SRPDSE” means the Supplementary Retirement Plan for Designated Salaried Employees of XXXXXXXXXX as provided in draft.

"RCA" means retirement compensation arrangement as defined in section 248(1) of the Act;

Facts

1. The Employer currently maintains the Pension Plan as described above.

2. The current executives of the Employer have their pensions under the Pension Plan limited to the maximum permitted under the Act. However, these employees are provided additional amounts under the SRPDSE computed in accordance with the terms of the SRPDSE.

3. The SRPDSE as provided in draft is an unregistered plan and does not address the funding of the plan.

4. The employer has established the SRPDSE to provide additional amounts under the SRPDSE computed in accordance with the terms of the SRPDSE and wishes to fund the obligations.

Proposed Transaction

5. The employer proposes to secure its obligations under the Plan by making contributions to an arm’s length custodian in order to provide the benefits payable under the Plan. For the purpose of this arrangement the employer will establish an RCA trust within the meaning assigned by subsection 207.5(1) of the Act. An amount equal to the employer’s contributions to the RCA trust will be remitted to Revenue Canada in respect of the refundable tax.

Purpose of the Proposed Transaction

The proposed transaction will provide a certain level of comfort to the Plan members by securing the payment of benefits under the Plan by way of a funded RCA.

Additional Information

None of the issues involved in this ruling request is, to the best of your knowledge, being considered by a Tax Service Office or Taxation Centre in connection with any tax return already filed by the employer, the executives or a related person, and none of the issues involved is the subject of any Notice of Objection or is under appeal.

Rulings

Provided the above statements of facts and proposed transactions are accurate and constitute a complete disclosure of all the relevant facts and proposed transactions, we rule as follows:

A. The establishment of the RCA Trust and the contribution to it as described in paragraph 5 above will result in the establishment of an RCA as that term is defined in subsection 248(1) of the Act;

B. For the purposes of subsection 207.7(1) of the Act and the definition of "refundable tax" under subsection 207.5(1) of the Act, and provided no amounts other than those described above are paid to the RCA Trust by or on behalf of the Employer, the Employer’s contributions to the RCA Trust will be:

i. the cash paid to the RCA Trust by the Employer as specified in paragraphs 5 above, and

ii. the amount remitted to the Receiver General by the Employer pursuant to paragraph 153(1)(p) of the Act and subsections 103(7) and 108(1) of the Regulations;

C. Contributions described in B above, made by or on behalf of the Employer will be deductible by the Employer to the extent permitted by paragraph 20(1)(r) of the Act for the taxation year in which the contributions are made; and

D. No participating employees will be required to include any amount in income under paragraph 56(1)(x) of the Act solely by virtue of the fact they are beneficiaries under the plan. Pursuant to paragraph 56(1)(x) of the Act, employees will be required to include in income any amount received out of or under the RCA in the year.

These rulings are provided subject to the general limitations and qualifications set out in the Department’s Information Circular 70-6R3 dated December 30 1996, and are binding provided the proposed transactions are entered into before XXXXXXXXXX.

Comments

You have not requested and we have not provided any ruling on the application of paragraph 60(j.1) of the Act to amounts paid out of the SRPDSE and nothing in this ruling should be construed as implying that Revenue Canada accepts that any amounts paid out of the SRPDSE can be treated as a retiring allowance as defined in the Act.

Yours truly,

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