Simon's Legal Resources

Federal Tax - Retirement Compensation Arrangements (RCAs)

. Canada v. Martin

In Canada v. Martin (Fed CA, 2026) the Federal Court of Appeal considered 'retirement compensation arrangements' (RCAs) under ITA s.248(1):

II. RCAs

[15] An RCA is defined in subsection 248(1) of the Act. Essentially, it is a plan or arrangement funded by an employer to provide payments to an employee after their retirement or loss of employment. The contributions made by the employer are deductible in computing the income of the employer (paragraph 20(1)(r) of the Act) and are excluded from the income of the employee (subparagraph 6(1)(a)(ii) of the Act). When the distributions from the RCA are eventually made to the employee, if the employee is then a resident of Canada, such distributions are included in the income of the employee (paragraph 56(1)(x) of the Act). If the employee is not then a resident of Canada, the distributions are either included in income (if the election as set out in section 217 of the Act is made) or are subject to withholding tax (paragraph 212(1)(j) of the Act). The amount of the withholding tax may be reduced by an applicable tax treaty.

[16] Part XI.3 of the Act imposes a refundable tax on the custodian of an RCA (subsection 207.7(1) of the Act), which will apply to the contributions made by the employer. Paragraph 153(1)(p) of the Act and subsection 103(7) of the Income Tax Regulations, C.R.C., c. 945 provide that the employer is to deduct and remit this refundable tax when the payments are made to the custodian of the RCA.

[17] The refundable tax under Part XI.3 is defined in subsection 207.5(1) of the Act. In general terms, the refundable tax is the amount, if any, by which the total of:

(a) 50% of the contributions made to the RCA; and

(b) 50% of the amount by which the income of the RCA exceeds the losses of the RCA (including capital gains and capital losses)

exceeds

(c) 50% of all amounts paid as distributions under the RCA.

[18] When the amounts are distributed from the RCA to the employee, the refundable tax imposed under Part XI.3 is refunded and the amounts distributed will be subject to tax under Part I or withholding tax under Part XIII, as noted above.