A retirement compensation arrangement (RCA) is a trust arrangement that is sometimes used to fund non-registered pension benefits. Each dollar that is deposited in the trust is taxed at the rate of 50%. This tax is refunded when the dollar is paid from the trust. The tax was originally imposed to prevent organizations from getting preferential tax treatment when funding supplemental retirement benefits.
It’s believed that, when the tax was first imposed, the top marginal corporate tax rate was about 50% – so the 50% RCA tax rate made sense. Since that time, however, the top marginal rate has fallen, without any change to the RCA tax rate. As a result, the RCA tax is now a strong disincentive for employers looking to fund supplemental benefits.
In an October 2005 letter to Finance Minister Goodale, the ACPM recommended a reduction in the refundable tax rate for RCAs. We proposed that the rate be lowered from the current 50% rate to a more tax-neutral rate in the range of 30-35%.
The ACPM’s Advocacy and Government Relations Committee (AGRC) will continue to follow this emerging issue.