| January 19, 1990 | |
| P. McNally, Director | Technical Interpretations |
| Enquiries and Taxpayer Assistance | Division |
| Division | S. Parnanzone |
| 957-9232 | |
| Attention: S. Moran |
SUBJECT: - Retirement Compensation Arrangement Guide (1989) - Initial Circulation
In accordance with your request of December 22, 1989 we have reviewed the above-noted Guide.
Our comments in the attached appendix are based on the provisions of the Income Tax Act as proposed, to be amended by Bill C-28 as passed by the House of Commons on December 20, 1989 and Bill C-52 (first reading, December 13, 1989). Unless otherwise indicated, the references to sections, subsections, etc., are to the Income Tax Act.
In our review we have ignored layout, typographical errors and language style unless we thought that they resulted in misleading information being provided to taxpayers.
If you have any questions, please contact us.
Bernhard BuetowActing DirectorTechnical Interpretations DivisionLegislative and Intergovernmental Affairs Branch
Appendix(S. Parnanzone)
RE: RETIREMENT COMPENSATION ARRANGEMENT GUIDE
CONTENTS
1 - We have not verified the index of contents.
GENERAL
Introduction.
1 - Second paragraph. The first sentence is ambiguous in that it indicates that the RCA legislation provides tax benefits (assistance) beyond that available under deferred income plans such as RRSPs, RPPs and DPSPs. In fact, the neutrality of tax considerations in setting up deferred income plans qualifying as RCAs is the main reason, in our views for the existence of the RCA legislation.
3 - Fourth paragraph. The explanation of the coming-into-force provision neglects to mention arrangements established after October 8, 1986 pursuant to a written agreement entered into before October 9, 1986. The "statutory arrangement" characteristics also apply to these arrangements. The paragraph also neglects to mention that pension plans whose registrations have been revoked are not affected by the transitional rule. (ie., the RCA definition in section 248(1) is applicable after October 8, 1986 to revoked pension plans.)
Although the explanation is under the heading of "Introduction" suggesting a general, as opposed to detailed, explanation, it is the only one dealing with the coming-into-force provision. Therefore, a more complete explanation appears to be in order.
Definition of Refundable Tax
4 - Second bullet. While we prefer the simpler wording of the previous draft we received, we note that the second last "or" ("property or capital loss") should be changed to "and" if the present wording is retained.
Refusal to Register a Pension Plan
5 - Last paragraph (after the third bullet). To be consistent with the wording in the second and the third bullets, we suggest changing "before the final determination" to "on or before the final determination". Alternatively, the Guide could explicitly indicate that the interest liability provisions would apply to all contributions whether made before, on or after the final determination.
Failure to Comply
6 - First paragraph, third sentence. We suggest indicating that an amount is not deductible under paragraph 20(1)(r) if it is part of a series of payments and refunds of contributions under the RCA
CUSTODIAN
Withholding and Remitting
7 - Second paragraph, second sentence. Replace "than annual" with "that the annual"
T4A-RCA and NR4/NR4A Filing Instruction
8 - The description of Box(E) is deficient because it neglects to mention both RCA's property dispositions for consideration less than fair market value and RCA's property acquisitions for amounts greater than fair market value. See subsection 56(11).
Distribution of Property by an RCA
9 - First Paragraph.
a) we suggest adding at the end of the first sentence "to a beneficiary in satisfaction of all or any part of the beneficiary's interest". We note that section 107.2 does not apply to any and all distributions by an RCA, as the Guide incorrectly implies.
b) The Guide neglects to outline all of the taxation consequences deemed to result under section 107.2 The consequences not mentioned are:
(i) The beneficiary is deemed to have disposed of his interest in the RCA trust for proceeds equal to the adjusted cost base of the interest (This would result in the inclusion of the proceeds in income under paragraph 56(1)(y) and the possible deduction of an amount under paragraph 60(u)), and
(ii) where the property distributed is depreciable property of a prescribed class and the RCA trust's capital cost exceeds the beneficiary's deemed cost, for purposes of the terminal loss, CCA claims and CCA recapture rules, the beneficiary is deemed to have claimed CCA equal to the excess and to have a capital cost equal to the RCAs capital cost of the property.
EMPLOYEE (or RETIREE)
Determining Amounts to be Included in Income
10 - Fourth paragraph, last sentence. The sentence neglects to mention that the amounts paid to acquire an interest in an RCA are deductible under paragraph 60 (u) only if they were paid white the taxpayer was resident in Canada.
Deductions in Calculating Income
11 - First paragraph second bullet. We suggest clarifying that the contributions are deductible under clause 8(1)(m.2)(iii)(B) only if they were made in accordance with the terms of the pension plan on last registered.
Distribution of Property by an RCA
12 - First paragraph, first sentence. For the reason indicated in comment 9 alone, we suggest adding at the end of the first sentence. "to a beneficiary in satisfaction of all or any part of the beneficiary 2 interest in the RCA trust".
13 - Last paragraph. The paragraph does not properly describe the tax consequences referred to in paragraph 107.2 (e) since it neglects to identify the circumstances which result in the beneficiary having to include in income CCA claimed by the RCA trust. See comment 9(b)(ii) above. Contrary to what is indicated in the Guide not all depreciable property distributions by an RCA will inevitably result in the beneficiary being required to include in income CCA claimed by the trust
14 - Exhibit IV, list of RCA for us. We have not verified accuracy of the former references.
15 - Could the Guide not be made shorter by combining certain topics (eg., penalty provisions) and avoiding repeating the explanation of the same tax provision in different chapters (eg., Custodian, Employer etc) of the Guide?