A Canadian professional sports team has established an RCA for the benefit of an athlete employee under which each required employer contribution reduces the salary otherwise payable to the athlete. Upon retirement or loss of employment from the team, the athlete receives a lump sum payment from the RCA equal to the value of the RCA’s assets. The RCA is intended to defer taxation of the amount contributed by the team to the RCA until it is distributed from the RCA to the athlete (who is a non-resident) and subjected to Part XIII tax of 25%. The athlete’s salary is attributable 40% to Canada and 60% to the U.S. (where many of the games are played). The athlete’s $2 million annual compensation is paid as to $1.2 million in salary and $800,000 as RCA contributions by the team. Can the employer contributions be deducted entirely from the Canadian employment income so as to result in nil income under s. 115(1)(a)(i) ($2 million x 40% - $800,000)? CRA responded:
[A]ny amounts that the team contributes to the athlete’s RCA are excluded from the calculation of employment income by virtue of subparagraph 6(1)(a)(ii) and therefore never enter into the calculation for the purpose of subparagraph 115(1)(a)(i). The athlete’s employment income … is $1.2 million, of which 40% is allocable to Canada. Accordingly, $480,000 is included in the athlete’s taxable income earned in Canada … .