23 January 2001 Internal T.I. 2000-0062067 - RCA Loans to Beneficiaries

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: Can an RCA loan property to the beneficiary directly or through an intermediary person?

Position: No.

Reasons: Paragraph 56(1)(x) applies to any payments from an RCA to the beneficiary that can reasonably be considered to have been received in respect of an office or employment.

		January 23, 2001

	WINNIPEG TAXATION CENTRE	HEADQUARTERS
	Pearl Fedick	M.P. Sarazin
	RCA Unit 	(613) 824-5441

		2000-006206

RCA and Loan to Beneficiary

We are writing to you in response to your referral to Trust Accounts Division of the Revenue Collections Directorate, which was forwarded to us on December 11, 2000, requesting our views as to whether a retirement compensation arrangement ("RCA") can loan money to a beneficiary. If not, can the loan be to a third party who will then pay it to the beneficiary?

Comments

In general terms, an RCA is defined in subsection 248(1) of 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. We have not previously dealt with the question of whether an RCA could take an employer contribution and loan it to the beneficiary of the RCA. The terms of the RCA would have to be reviewed in order to determine whether the RCA is entitled to loan money, directly or indirectly, to the beneficiary under the RCA. In such a case, we may question whether or not the arrangement is, in fact, an RCA because it would be questionable whether the employer contribution would be made in connection with benefits to be received on the employee's termination of services. We would have to review all of the facts in order to determine whether such an arrangement would constitute an RCA or some other form of arrangement.

Under paragraph 56(1)(x) of the Income Tax Act (the "Act"), a taxpayer is required to include any amount, including a return of contributions, received in the year by the taxpayer or another person, other than an amount required to be included in that other person's income for a taxation year under paragraph 12(1)(n.3), out of or under an RCA that can reasonably be considered to have been received in respect of an office or employment. It may be argued that a loan from an RCA could constitute an amount received by the taxpayer from an RCA that can reasonably be considered to have been received in respect of an office or employment. This determination is a question of fact. However, if this conclusion is supportable, the loan would have to be included in the recipient's income under paragraph 56(1)(x) of the Act.

Since paragraph 56(1)(x) of the Act includes amounts received by the taxpayer or another person, we would argue that a loan made to another person for the benefit of the beneficiary could also be subjected to paragraph 56(1)(x) of the Act.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (613) 994-2898. A copy will be sent to you for delivery to the client.

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate

c.c. Denyse E. Bertrand
Policy and Technical Support Section
Trust Accounts Division
Revenue Collections Directorate