In connection with a supplemental executive retirement plan (the “Plan”), the Employer established a trust and made annual contributions to it so that the independent trustee could pay the annual fees for a letter of credit provided by a bank to pay the promised benefits in the event of the Employer’s bankruptcy. The contributions so made were twice the LC fees in order that the Employer could withhold and remit to CRA 50% of the amount of the contributions made to the trustee as Part XI.3 tax. In accordance with the Plan, the Employer pays post-retirement benefits totaling $300,000 directly to the retired employees during the current taxation year. Do such benefits paid directly by the Employer qualify as distributions under the retirement compensation arrangement (“RCA”) as described in para. (c) of the s. 207.5(1) “refundable tax” definition? CRA responded:
[A]n amount is not paid as a distribution under the RCA unless the amount is paid from property held in connection with the RCA. In the above situation, the amounts of the direct payments made by the Employer to retired employees of post-retirement benefits in accordance with the Plan are not amounts paid as distributions under the RCA and would not be taken into account under paragraph (c) of the definition.