4 January 2006 Internal T.I. 2005-0115801I7 F - Convention de retraite -- summary under Retirement Compensation Arrangement

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.