10 May 1993 Internal T.I. 9312927 F - Retirement Compensation Arrangement

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.

May 10, 1993

Attention:  Carole Roy

Retirement Compensation Arrangement ("RCA")

This is in response to your referral of January 19, 1993, received from Source Deductions Division on March 4, 1993. We apologize for the delay in responding to your referral. In a telephone conversation on May 4, 1993, Ms. Ingram asked that we determine who is responsible for filing the various returns requested under the Income Tax Act in the specific case under study.

In order to establish who is responsible for the filing of the various returns that are required where an interest in a life insurance policy is acquired in conjunction with an RCA, one must first determine who acquired the interest in the life insurance policy and secondly, if the arrangement is an RCA as defined in subsection 248(1) or an arrangement described in subsection 207.6(2) of the Act.

Whether an RCA or an arrangement is created as contemplated by subsections 248(1) or 207.6(2) of the Act is a matter of fact and law which can only be ascertained by looking at all the circumstances. The limited explanations provided and the absence of any documents as to the arrangement between parties, prevents us from making a determination in this case. The following comments are therefore of a general nature only.

An RCA is defined in subsection 248(1) of the Act and specifically excludes payments made to acquire an interest in a life insurance policy, made by an employer or former employer of a taxpayer, or by a person with whom the employer or former employer does not deal at arm's length. However, the rules provided in subsection 207.6(2) of the Act will apply where the employer, former employer or a person or partnership with whom the employer or former employer does not deal at arm's length, purchases, pursuant to an arrangement, an interest in a life insurance policy that may reasonably be considered to be acquired to fund benefits described in that subsection. Subsection 207.6(2) will apply only if the arrangement is not otherwise an RCA as defined in subsection 248(1) and it is not excluded from the definition of an RCA by any of paragraphs (a) to (l) and (n) thereof.

Under subsection 207.6(2) of the Act, the person who acquires the policy is considered to be the custodian of an RCA, the life insurance policy is considered to be the "subject property" of the RCA, an amount equal to twice the amount of any premium paid under the policy is treated as a contribution to an RCA, and payments under the policy and refunds of refundable tax are treated as distributions by an RCA. Thus, the employer, former employer or a person or partnership with whom the employer or former employer does not deal at arm's length who acquires an interest in a life insurance policy will be required to withhold tax from any premium paid under the policy and to file the returns and pay the special 50 per cent refundable tax required under section 207.7.

It should be noted that the rules contained in subsection 207.6(2) of the Act are normally not applicable in the situation where an employer establishes an RCA which meets the requirements as set out in subsection 248(1) of the Act and the custodian of the RCA, which is normally the RCA trust, uses trust funds to acquire a life insurance policy as property of the RCA. There are no provisions in the Act or its Regulations restricting the type of investments that may be acquired by an RCA trust. The filing requirements are detailed in the RCA guide.

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