| 19(1) | File No. 5-9376 |
| Maureen Shea-DesRosiers | |
| (613) 957-8953 |
January 26, 1990
Dear Sirs:
Subject: 24(1)
This is in reply to your letter of January 3, 1990 with an attached letter from our Department dated December 11, 1984 concerning the following:
Because Registered Retirement Savings Plans (RRSP's) must mature on or before the end of the year in which the annuitant reaches the age of 71, an annuitant who receives a retiring allowance after age 71 has no opportunity to defer income tax upon the amount by transferring it to an RRSP. 24(1) These rules, in part, provide
(a) that the employer is the custodian of a Retirement Compensation Arrangement ("RCA")
(b) that the interest in the annuity contract is a subject property of the RCA.
Subsection 207.6(1) of the Act also has application in these circumstances. Said subsection provides that:
(a) an inter vivos trust is deemed to be created on the day the arrangement is established,
(b) the employer's interest in the annuity contract is deemed to be a property of the trust and
(c) the employer is deemed to be the trustee of the trust.
Although this deemed trust is not subject to Part 1 tax by virtue of paragraph 149(1)(q.1) of the Act, it is subject to the 50% refundable tax calculated under Part XI.3 of the Act. For this purpose, the trust's income includes the full amount of its capital gains and losses but does not include the paragraph 82(1)(b) gross up of dividends received by the trust.
The effect of paragraph 207.6(2)(c) of the Act is that it entitles the employer to a tax deduction equal to the deemed contribution which is defined as two times that premium paid. Since 50% of this deemed contribution must be withheld and remitted to the Department, the ultimate effect is that the employer receives a deduction equal to the premium plus the required withholding.
The annuity payments will be included in the recipient's income as amounts paid out of an RCA in accordance with the provisions of paragraph 207.6(2)(d) of the Act.
The employer, as custodian of the RCA, should direct the insurer (from whom the annuity was purchased) to issue T4A-RCA's to the recipients.
With respect to the various responsibilities of an RCA custodian, and to the calculations of Part XI.3 refundable tax, the Department has published a Retirement Compensation Guide which provides detailed explanations and examples. A copy of this guide is attached for your information.
We trust the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate