2015-0617341E5 RCA election in subsection 207.5(2)

Principal Issues: Whether the comments in 2004-0068231I7 relating to the application of the election remain valid.

Position: Yes.

Reasons: Law is unchanged.

Author: Podor, Karina
Section: 207.5(2); 207.5(3); 207.7(1); 207.7(2)

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                                                                                                                                                                             2015-061734
                                                                                                                                                                             K. Podor

February 29, 2016

Dear XXXXXXXXXX:

Re:    RCA election in subsection 207.5(2)

We are responding to your email inquiry dated November 9, 2015 concerning retirement compensation arrangements (“RCAs”) in which you asked us to confirm the validity of the following comment we made in document 2004-0068231I7:

“As is noted above, where a valid election is made by the custodian of a RCA pursuant to subsection 207.5(2) of the Act for a taxation year, the refundable tax is deemed to equal the amount, as described above.  Given that a refundable tax balance payable for a particular taxation year, pursuant to subsection 207.7(1), or refundable, pursuant to subsection 207.7(2), will be determined by comparing the refundable tax at the end of a particular year with the refundable tax at the end of the immediately preceding year, in our view, an amount deemed pursuant to an election under subsection 207.5(2) is relevant to the calculations for purposes of subsection 207.7(1) and (2) for the year of the election and for the immediately following year.”

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (“Act”) and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, “Advance Income Tax Rulings and Technical Interpretations”. 

We confirm that our prior comment remains valid.  An amount deemed by subsection 207.5(2) to be the refundable tax of an RCA at the end of a particular taxation year is to be used in determining the balance due or refund (as applicable) for the year of the election (as the refundable tax at the end of the year), as well as for the subsequent year (as the refundable tax at the end of the immediately preceding year).

We also note that subsection 207.5(3) of the Act was introduced in 2012 to restrict an RCA custodian’s ability to file an election under subsection 207.5(2) of the Act if any part of the decline in the value of the property held in the RCA is reasonably attributable to a prohibited investment or to an advantage in respect of the RCA.

We trust our comments will be of assistance.

Yours truly,

Mary Pat Baldwin, CPA, CA
Manager
Deferred Income Plans I
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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