| 24(1) | 5-902801 |
| D.S. Delorey | |
| (613) 957-3494 |
19(1)
November 19, 1990
Dear Sirs:
Re: Retirement Compensation Arrangement ("RCA") Letter of Credit
This is in reply to your letter of October 10, 1990 and further to our letter of August 14, 1990 concerning the above-referenced subject matter.
The comments in paragraphs numbered 1, 2 and 3 of our letter of August 14, 1990 were based on the assumption that the employee would hold the letter of credit. Where an RCA trust holds the letter of credit, no amount would be included in the employee's income until such time that he receives an amount out of the RCA, regardless of the fact that the employee might be the named beneficiary of the letter of credit. Likewise, an amount would be required to be included in the income of an employer who funds an RCA through a letter of credit only where the employer receives a payment out of the RCA and only in the year that such payment is received.
With respect to the latter point raised in your letter of October 10, 1990, we agree that this would generally be the case where the amounts involved and the terms of the arrangement are reasonable in the circumstances. That is, it is our view that generally speaking, no amount would be included in an employee's income under section 5 or 6 of the Income Tax Act (the "Act") with respect to a supplementary pension arrangement ("SPA") where
(a) the employee is not entitled to receive benefits under the SPA until termination of the SPA or termination of employment, and the reason for termination of the SPA is reasonable in the circumstances,
(b) the terms of the SPA are the same as those of the registered pension plan in which the employee participates, except that there is no limitation on the amount of the SPA pension benefits that can be earned. The SPA would, but for this difference, comply with the rules relating to registered pension plans as found in the Act and in Information Circular 72-13R8,
(c) no payments are made under the SPA in respect of the employee at any time, and
(d) the overall pension to be received by the employee is reasonable in the circumstances.
The above comments are an expression of opinion only and are not binding on the Department, as explained in paragraph 21 of Information Circular 70-6R2. Where confirmation is sought on the tax implications arising out of a particular arrangement, the Department is prepared to give such confirmation only where a review of all relevant facts and related documentation justify it. Such a review would be conducted by the appropriate district taxation office where the arrangement is in place, or by this office where the arrangement is the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2.
We trust that our comments are of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate