Retirement Compensation Arrangement

Administrative Policy

2019 Ruling 2019-0803761R3 - New RCA to replace benefits under existing RCA

new RCA trust permits the retired employee to request an immediate payout on “a material deterioration in the Canadian economy”

The Participant, a retired employee of Employerco, is entitled to defined benefits under both a registered pension plan and an existing retirement compensation arrangement (the Existing Supplemental Plan) funded by the Existing RCA Trust, whose trustee (the Existing RCA Trustee) generally only acts upon instructions from Employerco.

Proposed transactions

Employerco and the Participant will enter into a New Supplemental Plan for the purpose of providing retirement income to the Participant in respect of the Participant’s service as an employee and in substitution for the benefits provided to the Participant under the Existing Supplemental Plan.

Under the terms of the New Supplemental Plan, the amount of the annual benefits payable (quarterly) to the Participant is not materially different from those under the Existing Supplemental Plan, with a lump sum payable to the surviving spouse or other beneficiary on death; however, the Participant may, at any time

(i) following material changes in the Canadian economy or the financial needs of the Participant or Participant’s family, apply in writing to the Custodian to vary the amount of annual benefits, or

(ii) following the occurrence of a Specified Event, apply in writing to the Custodian, to receive a lump sum payment equal to the value of the Participant Account (i.e., the property in the trust including the right to the refundable tax) and the Custodian shall distribute the property then held by the New RCA Trust to the Participant, as well as any refundable tax generated in due course by such distribution.

“Specified Event” means the occurrence of:

(i) a significant health event or other emergency that … creates an unexpected change in financial circumstances and/or financial need, (ii) a material deterioration in the Canadian economy, (iii) a material change in personal income tax rates …, or (iv) any other event that could not have reasonably been foreseen by the Participant and creates an immediate need by the Participant for the use of funds held by the Trustee under the terms of the New RCA Trust.

Employerco will cause the Existing RCA Trustee to transfer a lump sum (equalling ½ of the actuarial equivalent value of the benefits accrued to the date of settlement) directly from the Existing Supplemental Plan to the custodian of the New Supplemental Plan, and apply for a corresponding amount of refundable tax to be now held by CRA for the account of the New rather than Existing RCA Trust.


The New Supplemental Plan will qualify as an RCA; and s. 207.6(7) will apply to the transfer to it.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 207.6 - Subsection 207.6(7) transfer of property from old to new RCA trust with more liberal terms 72

14 May 2012 Internal T.I. 2010-0367831I7 F - Régime de pension étranger. France

since employer acted as employee agent in making pension contributions, no RCA, EBP or SDA

Pension contributions paid by an employer on behalf of Canadian resident of French nationality were constructively received by the employee and were not to an RCA, SDA or EBP. CRA stated:

Since the employer acts as an agent and the amounts paid are not employer contributions, the rules on retirement compensation arrangements and employee benefit plans do not apply.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) contributions paid by employer to voluntary French pension funds for expatriates were constructively received by employee member 277

29 March 2006 Internal T.I. 2006-0171171I7 F - Convention de retraite

plan was not an RCA because benefits were unreasonable

A plan set up to provide benefits to officers of a corporation was not a retirement compensation arrangement (RCA) since the benefits to be paid were not reasonable in the circumstances.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 67 application of a version of the Gabco test 85

4 January 2006 Internal T.I. 2005-0115801I7 F - Convention de retraite

arrangement was not an RCA because the benefits were not reasonable

A closely-held corporation that was dividending out all the profits of its business also established a purported retirement compensation arrangement (RCA) trust for two employees who, indirectly, were the corporation’s two shareholders, and made contributions to the trust that were funded by loans from the trust. In finding that the arrangement did not qualify as an RCA because the benefits were not reasonable, the Directorate noted that the two individuals rendered their services to the corporation on a part-time basis, the contributions were funded with the loans rather than out of earnings, and it was only recently that the corporation had started paying salaries to the individuals.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) contributions to purported RCA that provided excessive benefits to employee/ultimate shareholders were included in the direct shareholders’ income under s. 56(2) 122
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(r) excessive benefits would have resulted in denial under ss. 18(1)(o.2) and 20(1)(r) had the arrangement qualified as an RCA 206
Tax Topics - Income Tax Act - Section 67 Petro-Canada applied re determining reasonableness 264
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangement contributions to a purported RCA that contemplated excessive benefits also were not in relation to an SDA because the contributions instead were indirect shareholder appropriations 108

2 February 2005 External T.I. 2004-0104671E5 F - Convention de retraite - Fonds mis de côté

no requirement that payment to the other be in trust

In a general response to a query as to whether a special reserve fund that an employer creates by depositing money with a broker to provide for the payment of a portion of a pension payable for the retirement of a management employee will constitute a salary deferral arrangement or a retirement compensation arrangement, CRA stated:

In a situation where an employer pays money to a bank, trust company or broker to meet its obligations upon the retirement of an employee, the money could be considered a contribution in respect of benefits that may be received by a person upon that person's retirement. …

Please note that the definition of a retirement compensation arrangement does not require that the contributions become the property of the person to whom they are made or that a trust be created. All that is required is the payment by an employer to another person of contributions in respect of benefits that a person may receive on retirement.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangement amounts agreed to be paid post-retirement do not create an SDA if they are not reasonably regarded as deferred salary 107

14 January 2004 External T.I. 2003-0046131E5 F - Convention de retraite - dépositaire

life insurance company can be a custodian

Can a life insurance company carrying on business in Canada be a custodian as defined in the definition of "retirement compensation arrangement" (“RCA”)? CRA responded:

[A]n employer of a taxpayer makes contributions to a life insurance company that fall within the definition of RCA, the life insurance company is a custodian as [so] defined … .

… [H]owever … a payment made to acquire an interest in a life insurance policy is not a contribution within the definition of RCA. Consequently, the life insurance company that receives such a payment is not a custodian, within the meaning of the RCA definition, merely by virtue of having received the payment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 207.6 - Subsection 207.6(2) employer is deemed custodian under s. 207.6(2) 80

16 October 2003 External T.I. 2003-0038315 F - CONVENTION DE RETRAITE

loan back to employer may negate RCA status
Also released under document number 2003-00383150.

An RCA trust created for the benefit of a managing shareholder and to which the employer contributed $100,000 lends the amount of the contribution, net of refundable taxes (i.e., $50,000), to the corporation. The loan bears interest of 12%. CCRA stated:

[W]here contributions under a plan are returned to the employer in the form of a loan, the Agency may question the existence of a retirement compensation arrangement in a situation where the contributions made may not relate to benefits that are receivable by a taxpayer upon retirement but rather for other purposes.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) reasonableness of interest rate determined re market interest rates 131

May 1998 Conference for Advanced Life Underwriting Round Table, Q. 3, No. 9807000

Where amounts paid to an RCA are returned in some manner to the employer, Revenue Canada "may question whether or not an RCA exists, as contributions under the arrangement may not be made in connection with benefits that are to be received by the taxpayer".

29 January 1996 External T.I. 9600425 F - LETTER OF CREDIT CONTRIBUTION TO RCA

Discussion of the distinction in the positions taken on letters of credit in question 21 of the 1995 APFF Round Table and question 48 of the 1992 Canadian Tax Foundation Round Table.

27 January 1994 T.I. HAA7284-1 (C.T.O. "Pension Plan Wind-up")

A registered pension which is revoked or deregistered will be considered to be a retirement compensation arrangement from the date of revocation or deregistration. However, the tax under Part XI.3 is not exigible on accumulated contributions and investment income accruing before the date registration is revoked.

1 April 1993 T.I. (Tax Window, No. 30, p. 12, ¶2492)

The exclusion in paragraph (m) does not apply where an employer agrees to provide periodic pension payments on retirement or a lump-sum payment on termination of employment and the employer purchases insurance to ensure that the payments will be made should the employer be unable to meet its obligations under such arrangement because of bankruptcy or other legal reasons specified in the insurance policy.

22 July 1992 External T.I. 5-921803

If a fund was excluded from the salary deferral arrangement definition by virtue of the exclusion in paragraph (k) thereof for a three-year bonus arrangement and it could be shown that the purpose of the arrangement was not to fund retirement benefits, the fund also would be exempted from the retirement compensation arrangement rules even though the three-year deferral period might end in a year after retirement.

18 June 1992 Income Tax Severed Letter 5-921789 - [920618]

An amalgamation of an employer should not effect the beneficiary of a retirement compensation arrangement.

4 June 1992 Internal T.I. 7-921449

An arrangement under which an employee elects to receive a retiring allowance over a three-year period and advises the employer to place the amount in the interim in a joint escrow account, constitutes a retirement compensation arrangement.

24 January 1992 External T.I. 5-913334

If the custodian to whom money is paid is an agent of the employer and the contributed funds do not become its property, no Part XII.3 tax is payable. If the custodian receives contributions as an agent of the employee or at the employee's direction, the arrangement will not be a retirement compensation arrangement provided that the establishment of the trust is not part of an encompassing arrangement.

8 November 1991 T.I. (Tax Window, No. 13, p. 1, ¶1590)

A trust established by a corporation in order to fund any personal liability of directors under various provincial statutes would not constitute a retirement compensation arrangement.

6 September 1991 T.I. (Tax Window, No. 10, p. 21, ¶1475)

The setting up of a fund to finance payment of retiring allowances to elected municipal officers who seek to hold office will probably constitute a retirement compensation arrangement.

19 September 1991 T.I. (Tax Window, No. 9, p. 13, ¶1455)

Any security arrangement can be considered a contribution, including the pledging of property as security for the plan, letters of credit, mortgages or asset-backed bank guarantees. An employer who sets apart assets for the benefit of employees in such a way that the assets are not available to creditors also may be considered to have made a contribution.

Dath and Fuoco, "Flexible Employee Benefit Arrangements", 1991 Corporate Management Tax Conference Report, c. 6

Discussion of cafeteria plans.

16 July 1991 T.I. (Tax Window, No. 6, p. 11, ¶1351)

Discussion of employee thrift plan.

90 C.R. - Q6

There is no retirement compensation arrangement where a major shareholder provides a personal guarantee to an employee in connection with certain retirement benefits to be provided by the corporation.

18 October 89 Meeting with Quebec Accountants, Q.10 (April 90 Access Letter, ¶1166)

An arrangement to fund a leave of absence, where the deferred salary will be paid by the employer to a person other than the taxpayer to be held for eventual payment to the employee during the leave of absence, will not constitute a retirement compensation arrangement.

88 C.R. - Q.29

The fair market value of a letter of credit which is acquired by an employer to guarantee the payment of retirement benefits to an employee is a contribution to a retirement compensation arrangement.


Jim Kahane, Uros Karadzic, Simon Létourneau-Laroche, "A Fresh Look at Retirement Compensation Arrangement: A Flexible Vehicle for Retirement Planning", Canadian Tax Journal (2013) 61:2, 479 – 502.

Meaning of "substantial changes in the services" (p. 481)

CRA... will consider that there has been a substantial change in services for the purposes of the definition of an RCA when the person retires or is terminated but continues to render different services than the ones formerly rendered to the employer. For example, a senior executive providing training as a part-time employee after termination would be considered to have experienced a substantial change in services. [fn 4: …guide T4041…]

Simon Thompson, "Canada's Income Tax Rules for Non-Registered Plans: Implications for Foreign Pensions", A Journal of International Taxation, Vol. 15, No. 10, October 2004, p. 34.

David Ross, "Secular Trust: An Alternative to a Retirement Compensation Arrangement in the Right Circumstances", Taxation of Executive Compensation in Retirement, Vol. 16, No. 1, July/August 2004, p. 431.

T. Moriarty, "The Use of Supplementary Executive Retirement Plans for the Mobile Employee", Taxation of Executive Compensation and Retirement, Vol. 9, No. 10, June 1998.

Stephens, "Use of Life Insurance Policies as Funding Vehicles", Taxation of Executive Compensation and Retirement, Vol. 9, No. 1, July/august 1997, p. 3.

Marilyn Lurz, "A Practical Guide to Administering a Retirement Compensation Arrangement", Taxation of Executive Compensation and Retirement, Volume 8, No. 4, November 1996, p. 211.

Dionne, "RCA Cash Flow Problems May be Alleviated by Filing Early Trust Tax Return", Taxation of Executive Compensation and Retirement, December 1990/January 1991, p. 371.

Singer, "Personal Guarantee by Shareholder May Avoid RCA Tax on Supplemental Pension Funding", Taxation of Executive Compensation and Retirement, June 1990, p. 293.