7 March 1994 External T.I. 9404685 - RETIREMENT COMPENSATION ARRANGEMENT

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

DOCUMENT TYPE:

Opinion

Principal Issues:

Can a salary deferral plan for professional athlete be an RCA and not an EBP

Position TAKEN:

General position, if meets paragraph (j) of SDA, then likely paragraph (j) of RCA, therefore neither and will be an EBP.

Reasons FOR POSITION TAKEN:

Legislation; unclear why writer wants plan to be RCA but we suspect it relates to beneficiary becoming a non-resident.

LEGAL:

na

FINANCE OPINION:

na

JURISPRUDENCE:

na

RCT PUBLICATIONS:

na

HAA NUMBER:

7680-4; 7200-9; 7200-8

			5-940468
XXXXXXXXXX	D. Duff

Attention: XXXXXXXXXX

March 7, 1994

Re: Proposed Retirement Compensation Arrangement

This is in response to your letter of February 18, 1994 and further to the correspondence dated December 10, 1993 from

XXXXXXXXXX

It is your position that such an arrangement would be a retirement compensation arrangement ("RCA").

A salary deferral arrangement ("SDA") is defined in subsection 248(1) of the Income Tax Act ("Act") basically as an arrangement under which a taxpayer has a right to receive an amount after the year and one of the main reasons for the arrangement is to postpone taxes payable on his salary. Pursuant to paragraph (j) of the definition, a plan to defer the salary of certain professional athletes is excluded from an SDA.

A retirement compensation arrangement ("RCA") is also defined in subsection 248(1) of the Act, and basically it is an arrangement by which an employer makes payments to a custodian to fund benefits to be received by the employee after retirement. Pursuant to paragraph (k) of the definition, a plan that is an SDA is excluded from an RCA. Paragraph (j) of the definition also excludes plans that, among other things, would have been an SDA but for paragraph (j) of the SDA definition.

Generally, a plan that defers the payment of 30% of an employees salary until after retirement would appear to be an SDA. You have argued that it would not be an SDA because the payment of the RCA refundable tax negates the tax postponement criteria necessary for an SDA. This implies that a plan otherwise meeting the criteria for both an SDA and an RCA would be an RCA because of the refundable tax. However, this is contrary to the position in paragraph (k) of the RCA definition that results in such plans, otherwise meeting the criteria of both SDAs and RCAs, being SDAs. The interpretative rule, that the specific overrides the general as stated in The Queen v. Albino 94 DTC 6071 referred to in your letter, is not applicable in such a situation.

The above are our general comments on such plans. If you have a specific proposed transaction it should be submitted in the form of a request for an advanced income tax ruling.

We trust this is satisfactory.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate