Fiduciary services for the employer who establish one or many retirement compensation arrangements (RCA) for one or many acting directors and/or one or many employees.

As a fiduciary, I assume the management of the trust, the filing of the annual income tax returns, the payment of revenu and capital and the regular reports to the beneficiary(s) of the RCA.

Retirement compensation arrangement

A retirement compensation arrangement is a plan or arrangement under which an employer makes contributions to a fiduciary. He holds the funds in trust with the intent of eventually distributing them to former active directors an/or employees in case of one of the following events :

• When the director or employee seeks retirement
• When he lost his charge or employment
• When there is a substantial change in the services the director and/or employee provides

For each $ 2 of contribution, the trust must pay $ 1 of refundable tax to the Canada Customs and Revenue Agency

The generated revenue on the investments of the trust is taxable at a rate of 50% of refundable taxes.

At retirement, when the beneficiary cash the distributions, the trust get back the refundable taxes at a rate of $ 1 for each $ 2 paid up as a distribution payment.

The beneficiary is taxed on the distribution proceeds which are not " earned income " for the purposes of the RRSP

For the employer

The employer contribution in the trust is 100% deductible from his taxable income.

When a corporation has a taxable income over $ 300 000, the difference between a regular income tax on income over this level and a refundable tax on a regular contribution in a retirement compensation arrangement will be at a minimum (50% - 35.16%). The cost of a retirement compensation arrangement in this situation will be low since we are replacing a regular income tax by a refundable income tax.

Retirement compensation arrangement advantages

• No contribution limit whatsoever
• All contributions are fully deductible from the employer taxable income
• A good mean for the management of the human resources since there is no outside agency ruling over the earning of benefits of the director and/or employee in the retirement compensation arrangement
• No effect on the maximum level of RRSP, RPA or RPSP
• Isn't under the scope of retirement complementary plans Law or any other such laws
• Isn't part of the assets of the corporation
• Isn't part of the employee assets as such, but he has the right to receive distributions
• Complete flexibility as to the schedule and timing for receiving distributions
• Easy channel to get cash out of the corporation in order to maintain the net worth of the issued shares of it under $ 500,000 for the individual capital gain lifetime deduction, if needed …
• An easy way to make profitable the " obligation " part of a balanced investment portfolio, under specific conditions.
• If the beneficiary is a non resident canadian when he receive distributions from the retirement compensation arrangement, he will taxed at a maximum rate of 25% which can be reduced with income tax convention related to the resident country, if available.
• The beneficiary may become a resident of a low rate province when he receive the distributions of the retirement compensation arrangement
• It could be a way to freeze up the value and even to buy back the shares of private corporations, after reviewing the anti avoidance tax rule.
• It could be a way to lower the book value of the corporation and put aside some cash necessary for buying the shares of a leaving shareholder.
• It could be used to buy shares when this is a first public issue on the market by the employer. 
• It could be a way to reduce the limit for high wage employees (+ $ 75 000) for the RRSP or the RPA.

Retirement compensation arrangement deadvantages

• The refundable income tax doesn't yield anything .
• The employee must be " insurable " if we want to use a life insurance contract as an investment vehicule.
• It can be argued that the value of the right to receive distributions from the retirement compensation arrangement is part of the family assets …

Mechanics for the refundable tax for the trust

1- Total of

    a) half of of employer contributions to the RCA

+

b) half of the RCA investment income

/

c) half of the distribution payments to the beneficiary of the RCA

If a + b > c = Refundable income tax, payable 
a + b < c = Refundable income tax, receivable

2- Any balance of refundable taxes at the Canada Customs and Revenue Agency will be refunded to the fiduciary who asked for when the trust has no more assets.