Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: 1) Does an RCA continue to exist after its refundable taxes are transferred to another tax account? 2) Can an RCA distribute its property to the beneficiary at its fair market value?
Position: 1) Yes. 2) Yes.
Reasons: 1) The RCA continues to exist until it has distributed its property in accordance with its terms. 2) There is nothing preventing the distribution of property.
January 9, 2001
WINNIPEG TAXATION CENTRE HEADQUARTERS Pearl Fedick M.P. Sarazin RCA Unit 824-5441
2000-006205
RCA Property Distributed to Beneficiary
We are writing to you in response to your referral to Trust Accounts Division of the Revenue Collections Directorate, which was forwarded to us on December 11, 2000, requesting our views as to whether a retirement compensation arrangement ("RCA") can distribute property to its beneficiary.
XXXXXXXXXX (the "Taxpayer") was the owner/manager of XXXXXXXXXX (the "Employer"). The Employer established an RCA for the benefit of the Taxpayer. In XXXXXXXXXX, the Employer went bankrupt and the RCA's refundable taxes at that time were transferred to the Employer's paydac acct XXXXXXXXXX.
Since XXXXXXXXXX, the RCA has held and continues to hold an insurance policy that has increased in value. The trustee of the RCA would like to distribute the property held in the RCA by transferring the insurance policy from the RCA to the Taxpayer or to a company controlled by the Taxpayer. In addition, your client wants to know whether the current fair market value of the property should be used in respect of the disposition of the life insurance policy or whether the fair market value of the property in XXXXXXXXXX should be used in respect of the disposition of the life insurance policy.
Comments
There is nothing in the Income Tax Act (the "Act") that would prevent an RCA from disposing of property to its beneficiary. Whether a particular plan or arrangement allows for the distribution of property other than cash is a question of fact. You may want to review the terms of the particular plan or arrangement in question.
Where a plan or arrangement is permitted to dispose of property to its beneficiary, we are of the view that the property will be disposed of at its fair market value on the date of disposition. Consequently, where an RCA transfers an insurance policy to its beneficiary, the beneficiary will have to include the current fair market value of the insurance policy in his or her income under paragraph 56(1)(x) of the Act. The beneficiary would also have to include the fair market value of the insurance policy where the insurance policy is transferred to a company controlled by the RCA beneficiary.
It should be noted that the fact that an RCA does not have a refundable tax, within the meaning assigned by subsection 207.5(1) of the Act, to its credit, would not result in the RCA ceasing to exist for purposes of the Act. The plan or arrangement would continue to exist until all of its property has been distributed in accordance with its terms.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (613) 994-2898. A copy will be sent to you for delivery to the client.
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
c.c. Denyse E. Bertrand
Policy and Technical Support Section
Trust Accounts Division
Revenue Collections Directorate