Revenu Canada Taxation Head Office
Your file 0126-07-0
XXXX
F. Gillman (613)957-8953
March 25, 1988
Dear Sirs:
Re: Retirement compensation arrangements (RCA's)
This is in respect to your letter dated February 3, 1988 wherein you requested our opinion with regards to the above captioned subject matter.
As expressed at paragraph 3 of Information Circular 70-6R dated December 18, 1978, the Department will not express opinions on definite transactions that are being proposed other than by way of an advance income tax ruling nor will the Department provide rulings on completed transactions.
It should also be noted that departmental policy is to express opinions with respect to requests that refer to one or two specific points, but not to requests of a general nature. We have enclosed the above mentioned information circular for your benefit.
Nevertheless, the following general comments for your assistance are being expressed.
With regards to a situation as you described in your request whereby under an RCA, a custodian would purchase an annuity for a retiring employee, and the issuer of the annuity would provide the annuitant with monthly payments for life, your description of the refundable tax process is correct in principle. The custodian, upon receiving communication of the amount paid during the year from the issuer of the annuity, would in turn request the refund of taxes from Revenue Canada based upon this amount.
It should be noted however, that sections 153-158 inclusive of the Income Tax Act which pertain to deducting taxes at source apply to RCA's with such modifications as the circumstances require. This will result in the custodian establishing a tax deduction remittance account which will house the tax they will be deducting from the above-mentioned distribution. In addition, the employer is responsible to deduct at source 50% from any contribution made to the custodian of the plan.
It is suggested that reference be made to Part XI.3 of the Income Tax Act entitled "Tax in Respect of Retirement Compensation Arrangements", in order to more fully understand the process and functioning of RCA's.
The opinions expressed above are of a general nature and will not necessarily apply in a particular circumstance. As mentioned at paragraph 24 of Information Circular 70-6R any expressions of opinions contained within these presents are not binding on the Department.
We trust the foregoing will prove helpful.
for the Director Bilingual Services and Resource Industries Division Rulings Directorate