R. Nanner (613)957-3494
May 20, 1988
Dear Sirs:
This is in response to your letter dated April 20, 1988 regarding Retirement Compensation Arrangements ("RCA") as defined in subsection 248(1) of the Income Tax Act.
Specifically you asked our opinion as to whether an unregistered pension arrangement would be an RCA under the following circumstances:
Arrangement #1
The accruing pension obligation is recorded as a liability on the employer's financial statements, but there is no segregation of employer assets with respect to this specific obligation.
Our Opinion
In our view the above-described plan would not be an RCA as no actual contributions are being made by the employer to a custodian to fund the arrangement.
Arrangement #2
The accruing pension obligation is set up as a reserve on the employer's financial statements, which is credited with interest each year based on the rate of interest earned on the employer's short-term investments, but there is no segregation of assets with respect to this specific obligation.
Our Opinion
We are of the opinion that for the reason given in 1. this arrangement would not be an RCA.
Arrangement #3
The accruing pension obligation is set up as a reserve on the employer's financial statements and a corresponding portion of the employer's assets are set aside and invested in term deposits. The term deposits would be held in the name of the employer and the employees who are entitled to pensions under the arrangement would have no direct claim on these assets under any circumstances.
Our Opinion
In the foregoing situation, the determination as to whether this arrangement is an RCA would have to be made after consideration of the relevant facts. For instance, if the terms of the arrangement are such that the term deposits are held by a custodian (e.g. a bank) in trust, contingently or otherwise, for the benefit of beneficiaries of the arrangement this would suggest, albeit not conclusively, that the arrangement was an RCA.
Arrangement #4
As in 3, but the term deposits are held in the name of the supplementary pension arrangement, rather than the employer itself. Again, the employees would have no direct claim on these assets.
Our Opinion
The above-described arrangement, in our view, would be an RCA because, even though the members of the arrangement do not have a direct claim against the assets under the arrangement, funds are being contributed by the employer to a custodian in order to fund retirement benefits which may be received by its employees.
Arrangement #5
As in 4, but the employees would have a claim on the assets set aside for the supplementary pension arrangement in the event that the employer did not meet its obligations under the arrangement.
Arrangement #6
As in 5, but the assets are held by the employer in trust under the arrangement.
Our Opinion
Each of the arrangements described in 5 and 6 above would be an RCA as funds are being contributed by the employer to a custodian to fund benefits which are to be or may be received by retiring employees.
We hope the above comments are of assistance to you.
The foregoing is an expression of opinion only and is not binding on this Department.
Yours truly,
for Director Financial Industries Division Rulings Directorate