Principal Issues: Will a plan or arrangement that may make a post-employment payment be an RCA?
Position: Question of fact.
Reasons: The wording of the definition of an RCA in subsection 248(1) of the Act requires that the plan or arrangement be funded in connection with benefits that are to be, or may be, received or enjoyed on, after or in contemplation of a substantial change in services rendered, retirement or loss of employment. The unique facts in each situation must be considered to make a determination
XXXXXXXXXX 2002-013070
P. Kohnen
August 23, 2004
Dear XXXXXXXXXX:
Re: Technical interpretation - Retirement Compensation Arrangement
This is in reply to your submission of March 19, 2002, requesting our comments regarding the interpretation of the definition of a retirement compensation arrangement ("RCA") in subsection 248(1) of the Income Tax Act (the "Act"). Your submission is further to comments provided in our document 2002-0119715, which dealt with a scenario in which a discretionary payment provision was added to an arrangement purporting to be an RCA, whereby the trustee could make a payment to an employee prior to a termination of employment by the employee. Please accept our apologies for the delay in responding.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Copies of information circulars, guides and pamphlets are available at your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.
Our Comments
Subject to certain listed exclusions, an RCA is defined in subsection 248(1) of the Act as a plan or arrangement under which contributions are made by an employer or former employer of a taxpayer to another person (a "custodian") in connection with benefits that are to be or may be received or enjoyed by any person on, after or in contemplation of any substantial change in the services rendered by the taxpayer, the retirement of the taxpayer, or the loss of an office or employment of the taxpayer. As is noted in the 1987 Department of Finance technical notes in regard to the RCA definition "An RCA is a plan or arrangement under which an employer makes payments to another person, called a custodian, in order that benefits may be paid to an employee or any other person after the employee retires or otherwise severs his employment with the employer".
The determination of whether a particular plan or arrangement was entered into with an intention of funding benefits that may be paid after retirement or the severing of or substantial change in employment services rendered will depend upon the unique facts in a given situation. If the facts lead to a conclusion that the plan or arrangement was entered into with the intention of paying, or allowing for the discretionary payment of benefits before a termination of employment, where there has been no substantial change in the services rendered by the employee, the plan or arrangement may not qualify as an RCA, as defined in subsection 248(1) of the Act.
The fact that a plan or arrangement may provide for the possibility of a post-employment payment being made would not, in and of itself, always lead to a definitive determination that the plan or arrangement was an RCA. As was noted above, such a determination may only be made after considering all of the relevant facts in a given situation.
We trust that the above comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate