Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: (1) Will the proposed supplemental plan qualify as an RCA? (2) If so, will the proposed transfer of property from the existing RCA to the new RCA qualify as a transfer under subsection 207.6(7)?
Position: (1) Yes. (2) Yes.
Reasons: Application of the legislation.
Section: “retirement compensation arrangement” 248(1); 207.6(7)
Re: Advance Income Tax Ruling Request
This is in reply to your letter of XXXXXXXXXX requesting an advance income tax ruling (Ruling) on behalf of the above-noted taxpayers. We also acknowledge the information provided for this file by email and in telephone conversations.
To the best of your knowledge and that of the taxpayers involved, none of the proposed transactions or issues involved in this Ruling request are the same as or substantially similar to transactions or issues that are:
(i) in a previously filed tax return of the taxpayer or a related person and:
(A) being considered by the CRA in connection with such return;
(B) under objection by the taxpayer or a related person; or
(C) the subject of a current or completed court process involving the taxpayer or a related person; or
(ii) the subject of a Ruling request previously considered by this Directorate.
Unless otherwise stated, all references to a statute are to the relevant provision of the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1, as amended, (the Act), and all terms and conditions used in this letter that are defined in the Act have the meaning given in such definition. In addition, the following terms have the following meanings.
“Beneficiary” means any person or persons designated in writing as a beneficiary by the Participant under the New Supplemental Plan.
“CRA” means Canada Revenue Agency.
“Custodian” means the trust company or financial institution that shall be appointed as the sole trustee and custodian of the New RCA Trust, and shall deal at arm’s length with the Participant and be a resident of Canada for purposes of the Act.
“Employerco” means XXXXXXXXXX, a corporation incorporated under the laws of the Province of XXXXXXXXXX. Employerco is a taxable Canadian corporation and a public corporation. Employerco deals with the XXXXXXXXXX Tax Services Office and files its income tax returns at the XXXXXXXXXX Taxation Centre.
“Existing Pension Plan” means the XXXXXXXXXX established with effect from XXXXXXXXXX, including any changes, amendments or modifications that have been made or may from time to time be made by Employerco and entities affiliated with Employerco. The Existing Pension Plan is a registered pension plan.
“Existing RCA Trust” means the trust established by Employerco for the purposes of the Existing Supplemental Plan. The Existing RCA Trust deals with the XXXXXXXXXX Tax Services Office and files its income tax returns at the XXXXXXXXXX Taxation Centre.
“Existing RCA Trustee” means XXXXXXXXXX, a trust company existing under the laws of Canada, in its capacity as the sole trustee and custodian of the Existing RCA Trust.
“Existing Supplemental Plan” means the XXXXXXXXXX established with effect from XXXXXXXXXX, including any changes, amendments or modifications that have been made or may from time to time be made by Employerco and entities affiliated with Employerco.
“New RCA Trust” means a trust that will be established by Employerco for the purposes of the New Supplemental Plan, of which the Custodian will act as the sole trustee.
“New Supplemental Plan” means a plan that will be formed in connection with establishing an RCA for the Participant, and will be established by Employerco for the purpose of providing retirement income to the Participant in respect of the Participant’s service as an employee.
“Participant” means XXXXXXXXXX, an individual who is resident in Canada. The Participant deals with the XXXXXXXXXX Tax Services Office and files their income tax returns at the XXXXXXXXXX Taxation Centre.
“Participant Account” means the money and/or other property transferred to the New RCA Trust under the terms of the New Supplemental Plan, including the right to refundable tax remitted to the Receiver General in respect of such transfer and in respect of investment income of the New RCA Trust, less any taxes, penalties or expenses paid from the New RCA Trust, and includes accrued investment income.
“RCA” means retirement compensation arrangement, as defined in subsection 248(1).
“Specified Event” under the New Supplemental Plan means the occurrence of (i) a significant health event or other emergency that affects the Participant or their family and creates an unexpected change in financial circumstances and/or financial need, (ii) a material deterioration in the Canadian economy, (iii) a material change in personal income tax rates in Canada, or in any applicable province of Canada where such change affects the Participant, or (iv) any other event that could not have reasonably been foreseen by the Participant and creates an immediate need by the Participant for the use of funds held by the Trustee under the terms of the New RCA Trust.
A complete description of all the relevant facts is as follows:
1. The Participant was continuously employed by Employerco or its predecessors from XXXXXXXXXX to XXXXXXXXXX.
2. On XXXXXXXXXX, the Participant retired from Employerco.
3. The Participant is a member of both the Existing Pension Plan and Existing Supplemental Plan.
4. As a result of the Participant’s retirement, the Participant became entitled to receive benefits under both the Existing Pension Plan and Existing Supplemental Plan. The benefits under both plans are payable on a defined-benefit basis.
5. Under the terms of the Existing Supplemental Plan, the Participant is entitled to receive benefits equal to the difference between (i) the amount that the Participant would be entitled to receive under the Existing Pension Plan but for the application of the limits set out in the provisions of the Act pertaining to registered pension plans, and (ii) the amount actually payable to the Participant under the Existing Pension Plan.
6. The Existing Supplemental Plan is an RCA, the property of which is held in the Existing RCA Trust. Under the terms of the Existing RCA Trust, the Existing RCA Trustee generally only acts with respect to such property upon instructions from Employerco.
7. Employerco and the Participant will enter into a New Supplemental Plan for the purpose of providing retirement income to the Participant in respect of the Participant’s service as an employee and in substitution for the benefits provided to the Participant under the Existing Supplemental Plan.
8. Under the terms of the New Supplemental Plan,
(a) subject to paragraphs (c) and (d), the amount of the annual benefits payable to the Participant is not materially different from the amount of the annual benefits that would otherwise have been payable to the Participant under the Existing Supplemental Plan;
(b) the benefits are payable quarterly during the lifetime of the Participant, and in the event of the Participant’s death, to the Participant’s spouse (if any, at the time of the Participant’s death), and any remaining benefit payments on the spouse’s death (if the spouse survives the Participant) or, if there is no spouse at the time of the Participant’s death, shall be payable to the Beneficiary of the Participant as a lump sum payment;
(c) the value of the Participant Account shall constitute the total value of all benefits payable;
(d) the Participant may, at any time
(i) following material changes in the Canadian economy or the financial needs of the Participant or Participant’s family, apply in writing to the Custodian to vary the amount of annual benefits, or
(ii) following the occurrence of a Specified Event, apply in writing to the Custodian, to receive a lump sum payment equal to the value of the Participant Account and the Custodian shall
(A) distribute the property then held by the New RCA Trust to the Participant, and
(B) in due course, forthwith after having received any amounts (as refunds of refundable tax) as a result of the distribution described in the preceding clause (A) distribute such amounts to the Participant; and
(e) the Custodian may from time to time appoint, in consultation with the Participant, an investment manager to undertake the investment and reinvestment of all or any portion of the property held by the Custodian under the terms of the New RCA Trust.
9. A New RCA Trust will be established by Employerco, of which the Participant will be the sole beneficiary. The New RCA Trust, which will hold property in connection with benefits to be provided under the New Supplemental Plan, will be governed by the laws of the Province of XXXXXXXXXX.
10. Pursuant to the terms of the Existing Supplemental Plan, Employerco will settle the Participant’s accrued benefits in the Existing Supplemental Plan by causing the Existing RCA Trustee to transfer a lump sum amount (equal to one-half of the actuarial equivalent value of the benefits accrued to the date of settlement) directly from the Existing Supplemental Plan to the Custodian of the New Supplemental Plan, and to make application to the CRA to transfer a corresponding amount of refundable tax held by the CRA for the account of the Existing RCA Trust to a new account established by the CRA for the New RCA Trust.
11. The Custodian of the New Supplemental Plan will, in accordance with the terms of the New Supplemental Plan, hold such funds transferred from the Existing RCA Trust in the New RCA Trust with the intent of distributing them to the Participant on a periodic basis in accordance with the terms of the New Supplemental Plan.
12. Upon completion of the transfer, Employerco shall have no further contribution obligations in respect of New Supplemental Plan and no additional contributions will be permitted to be made.
Purpose of the Proposed Transactions
13. The purpose of the proposed transactions is to allow for a portion of the property currently held in the Existing RCA Trust that would otherwise fund benefits payable to the Participant to (a) be segregated in a separate trust from the property and investment activities of the Existing RCA Trust, and (b) be managed by different investment managers who could pursue investment objectives that may differ from those of the Existing RCA Trust.
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, transactions and the purpose of the transactions, and provided further that the transactions are completed in the manner described above, we rule as follows:
A. The New Supplemental Plan will qualify as an RCA.
B. Subsection 207.6(7) will apply in respect of the transfer described in paragraph 10.
The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R9 Advance Income Tax Rulings and Technical Interpretations issued on April 23, 2019, and are binding on the CRA provided that the proposed transactions described in paragraphs 7 to 10 are completed on or before XXXXXXXXXX.
The above rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.
Nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or made any determination in respect of any tax consequences relating to the facts and proposed transactions herein, other than those specifically described in the rulings given above. The documentation submitted with your request that is not described above does not form part of the facts and transactions and any references to the documentation are provided solely for the convenience of the reader.
If the amount of annual benefits under the New Supplemental Plan is varied (e.g., as described in subparagraph 8(d)(i)) and the amount, as varied, does not meet subparagraph 8(a), then the payments in respect of the annual benefits, as varied, will not meet the conditions in subparagraph (b)(i) of the definition of “eligible pension income” in subsection 60.03(1).
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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