Principal Issue: [TaxInterpretations translation]
Does a deemed RCA trust have to pay tax under Part XI.3 of the Act when it makes withdrawals from a life insurance policy that was used to fund an RCA and the provisions of subsection 207.6(2) of the Act apply?
Position: No
Reason: The provisions of subsection 207.6(2) apply to a deemed RCA trust that acquires an interest in a life insurance policy.
FINANCIAL PRODUCTS ROUNDTABLE
APFF - CONFERENCE 2003
Question 10
Retirement Compensation Arrangement
Where an employer is required under a plan or arrangement to provide benefits to be received or enjoyed by an employee upon retirement, the employer may acquire a life insurance policy to fund the plan or arrangement and designate the employee as the beneficiary.
Such a plan or arrangement is subject to the provisions of subsections 207.6(1) and (2).
Can you confirm that withdrawals from the life insurance policy will not result in the custodian being liable for the refundable tax under Part XI.3 tax as provided in subsection 207.5(1)?
CRA Response
Where an employer is required to provide benefits to be received or enjoyed by a person on retirement and that employer acquires an interest in a life insurance policy that can reasonably be considered to have been acquired to fund those benefits, the provisions of subsection 207.6(2) apply to the acquisition of the life insurance policy. Subsection 207.6(2) deems an employer who acquires an interest in a life insurance policy in such circumstances to be the custodian of the RCA whose interest in the life insurance policy is deemed to be the specified property of the RCA.
Paragraph 207.6(2)(d) provides that any payment received in respect of an interest in a life insurance policy and any amount of refundable tax received, is deemed to be solely an amount out of or under the RCA by the recipient and not to be the payment of any other amount. Since the amounts are deemed to be received by the beneficiary, we are of the view that the custodian does not have to pay Part XI.3 tax on the amounts derived from the interest in the life insurance policy. However, those amounts will give rise to a refund of refundable tax under the computation provided in paragraph (c) of the definition of refundable tax in subsection 207.5(1).
Withdrawals from the life insurance policy received by the employee as a recipient that are deemed to be amounts paid under a retirement compensation arrangement will be included in the employee's income pursuant to paragraph 56(1)(x).
Michelle Desrosiers
October 10, 2003
2003-003714