May 9, 1989
Dear Sirs:
This is in reply to your letter of April 18, 1989, wherein you requested a technical interpretation with respect to certain foreign plans under which your client, a Canadian resident, is a participant.
We do not give opinions in respect of factual completed transactions and therefore suggest that you consult with the local district taxation office. However, we will offer the following general comments.
Generally, a plan under which contributions are made by an employer to a custodian in connection with benefits to be received on retirement or substantial change in services would be considered a "retirement compensation arrangement" ("RCA") under subsection 248(1) of the Income Tax Act (the "Act").
We direct your attention to subsection 207.6(5) of the Act which provides that a plan that would be exempted from the definition of RCA under subsection 248(1) of the Act by virtue of paragraph (L) thereof will be deemed to be a "Residents arrangement" and subject to the RCA rules to the extent that the contributions are made in respect of services rendered by an employee who was resident in Canada at the time the services were rendered.
However, it should be noted that the Department of Finance proposes to exclude certain foreign pension plans from the RCA rules provided they meet certain conditions.
Furthermore, it is our view that a payment received upon retirement by an employee that represents unused sick leave credits would generally be considered a retiring allowance under subsection 248(1) of the Act unless the payment is made under a funded plan. In the latter situation the plan would be considered an RCA.
Finally, it should be noted that the determination of whether a foreign pension plan is an RCA, SDA or an unregistered pension plan can only be made after a detailed examination of all the relevant terms and conditions.
We trust the above comments will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate