5-910243
Dear Sirs:
Re: Retirement Compensation Arrangements ("RCA's")
This is in reply to your letter of January 22, 1991, wherein you requested our opinion with respect to RCA's in a particular situation.
"As noted in Information Circular 70-6R2, we do not express opinions or specific proposed transactions other than as a reply to an advance income tax ruling request. As a consequence thereof, we may only offer the following general comments.
The definition in subsection 248(1) of the Income Tax Act (the "Act") of an RCA is applicable after October 8, 1986. A plan or arrangement in existence on October 8, 1986 which would otherwise be an RCA would be considered to be an employee benefit plan ("EBP") and the RCA rules will not apply to the EBP before January l, 1988, or such earlier date after October 8, 1986 on which the EBP has been materially altered.
In the situation described by you, it is our view that
24(1)
However, where funds from one or more of these policies are withdrawn by the employer and used to purchase an annuity to facilitate retirement income payments to an employee, it is our view that at that time the provisions of subsection 207.6(2) will be applicable with respect to the annuity. Accordingly, the employer would be deemed to be the custodian of an RCA, the annuity would be deemed to be the subject property of the RCA, and an amount equal to twice the cost of the annuity would be deemed to be a contribution to the RCA. The employer would therefore be required to withhold and submit on behalf of the RCA the refundable tax equal to 50% of the deemed contribution to the RCA.
The above comments are of a general nature only and are not binding on the Department.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate