Gagnon J provided (at paras. 76-77) the following overview of the RCA rules before finding that 100% of contributions made to the RCAs of US athletes were exclusions only from their Canadian-source income:
RCAs do not pay tax under Part I ITA [citing s. 149(1)(q.1)].Instead, RCAs are subject to a special Part XI.3 ITA tax regime. Part XI.3 ITA levies a 50% refundable tax on all RCA contributions [citing s. 207.7(2)], withheld at source [citing s. 153(1)(p)]. There is also a further 50% refundable tax on the RCA’s income from business or property for each year as well as its capital gains for the year [citing s. 207.5(1) – refundable tax – (b)]. All RCA’s taxes are refunded to the custodian on the basis of 50% of funds made to the RCA trust beneficiaries [citing s. 207.7(2)].
Contributions are generally deductible by employers on a current basis [citing ss. 20(1)(r) and 8(1)(m.2)]. Distributions out of an RCA to a Canadian resident employee or former employee are included in income when received [citing ss. 56(1)(x)-(z)] and with tax withheld at source [citing ss. 153(1)(q) and (r)]. Distributions out of an RCA to a non-resident beneficiary of Canada could be taxed under Part I ITA [citing s. 217] or Part XIII ITA [citing s. 212(1)(j)] subject to any relevant tax treaty.