5-910904
Dear Sirs:
Re: Retirement Compensation Arrangement ("RCA")
This is in reply to your letter of March 15, 1991 concerning the abovementioned subject.
As noted in Information Circular 70-6R2, we do not provide written opinions on proposed transactions other than as a reply to an advance income tax ruling request. If the transactions are completed, you should address your enquiry to your local district taxation office to ascertain their income tax implications. We are, however, prepared to offer the following general comments.
Where an employer acquires an interest in a life insurance policy that may reasonably be considered to fund benefits to be received by an employee upon his retirement or upon substantial change in services rendered, the arrangement would be subject to the RCA rules by virtue of subsection 207.6(2) of the Act. This would be the case whether the agreement is written or unwritten, or whether the entitlement to future payments is qualified or unqualified. All the factors of a particular situation would have to be considered to determine whether the RCA rules apply or not.
Insurance polices are treated for RCA purposes in the same manner as annuities. The only change is in the calculation of income subject to refundable tax which may vary in accordance with provisions of the Act which are particular to the determination of income from Insurance. The RCA provisions do not of themselves provide any rules in this respect. With reference to "exempt" and "non-exempt" policies and their treatment, the provisions of section 12.2 of the Act provide rules specific to the determination of insurance income. In general under subsection 12.2(1) of the Act growth of an exempt policy's accumulating income is excluded from income.
With respect to payments out of or in respect of an insurance policy, the RCA provisions do not differentiate as to whether a policy is exempt or not. All payments out of an arrangement would be included in income of the recipient as income from an RCA.
We trust the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch