24(1)
5-903101
M.P. Baldwin
(613) 957-3499
19(1)November 20, 1990
Dear Sir:
Re: Retirement Compensation Arrangement ("RCA")
This is in reply to your letter of October 31, 1990, concerning the above mentioned subject. Further to our letter of October 9, 1990 in which we provided a technical interpretation with respect to your letter of August 10, 1990, we have the following comments.
In your original letter you stated that A company is going to purchase an indexed annuity for the lifetime of Mrs X from an insurance company. Under subsection 207.6(2) of the Income Tax Act (the "Act"), the annuity contract is the subject property and would be deemed to be property of an RCA. As such, under subsection 207.6(1) of the Act the subject property of an RCA is deemed to be held in trust and the custodian of the RCA is deemed to be the trustee. As the RCA is deemed to be an RCA trust it would be subject to refundable tax which is calculated in accordance with subsection 207.5(1) of the Act. Therefore, any interest income on the insurance policy would be subject to the 50% refundable tax.
We agree with your comment that under paragraph 207.6(2)(d) of the Act an annuity payment is deemed to be an amount under an RCA and not to be a payment of any other amount. The annuity payment would be included in A company's income under paragraph 12(1)(n.3) of the Act but would also be subject to a refund of refundable tax under subsection 206.5(1) of the Act. In effect, the annual income from the insurance policy would be subject to the refundable tax and when the income is paid out of the RCA it would receive a refund of the refundable Tax.
We also agree with your comment that under paragraph 207.6(2)(d) of the Act, an amount received by A company as a refund of refundable tax would be deemed to be received out of the RCA and included in A company's income under paragraph 12(1)(n.3) of the Act.
We trust the above comments will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate