Connect with us

Business

What is a Retirement Compensation Arrangement (“RCA”)?

Published

8 years ago

9 minute read

An RCA is a plan that is funded by contributions from employers and employees to a custodian who manages the funds. RCAs are used to fund the retirement of an employee, their loss of employment or a substantial change in the services that they provide.

How it works?

Employers make annual tax deductible contributions to an RCA that are subject to a refundable 50% withholding tax. Since the payments are not made to the employee, they are not subject to any tax implications in the year the contributions are made.  When payments are made from the plan to the employee, the refundable taxes paid are recovered at the same rate (e.g. $1 of every $2 paid). All income earned within the plan is subject to the refundable 50% tax and is recoverable at the same rate as above. The employee pays personal tax on distributions from the RCA in the year they are received.

Employees can also make tax deductible contributions to an RCA. The contributions are similarly considered deductible and subject to the 50% refundable withholding tax.

Types of plans

An RCA can be set up as either a Defined Benefit Plan (“DBP”) or a Defined Contribution Plan (“DCP”). As the title suggests, a DBP provides employees with a defined pension amount annually, upon retirement. Whereas employees on a DCP will receive only what was contributed to the plan, plus any income earned or less any losses incurred, a DBP will require the periodic involvement of an actuary to determine whether the plan is properly funded.

A DBP puts the risk of losses on investments in the hands of the employer and a DCP passes that risk to the employees as they will receive what is remaining in the plan.

Who will benefit from RCAs?

Employees

Employees who participate in an RCA will enjoy future pension benefits and peace of mind knowing that, if the employer were to close down and they lost their employment, the assets of the RCA would be protected against the creditors of the employer.

The 50% refundable withholding rate is currently less than the top tax bracket in a number of provinces. As such, the after-tax investment for the pension is no longer considered a disadvantage to RCAs for high-income earning employees as the plan will invest 50% of the amount they are paid as opposed to less than 50%, had they been paid as a salary.

Contributions to the RCA by an employer will not reduce the RRSP contribution room for the employee, which is not the case for contributions made to a Retirement Pension Plan (“RPP”).

Further tax savings can be obtained by paying the employees out of the RCA in future years when their income levels are lower and subject to lower marginal tax rates.  When you consider the ability to include income in lower income earning years, employees living in provinces and territories not subject to >50% tax at the top rate can still benefit from an RCA.

Employers

Employers may wish to provide a retirement package for their employees but not pay the high costs of operating an RPP or an Individual Pension Plan (“IPP”). If the owner-manager of the company or someone already within the company completes the required remittance forms and bookkeeping for the plan, the costs associated with an RCA would include the preparation of the trust return, identified above, and investment advisor fees, if an advisor is used. Additional costs may be applicable for DPBs since possible periodic actuarial valuations may be needed to ensure the plan is properly funded.

Employers can also utilize RCAs for what’s referred to as “Golden Handcuffs,” meaning they can require an employee to meet certain length-of-employment requirements before the pension contributions vest. This will help employers retain key employees that are vital to their operations.

Tax benefits for employer

One group that may benefit most from these plans are companies involved in Scientific Research and Experimental Development (“SRED”) that must maintain low taxable income and taxable capital figures to retain their benefits from the enhanced investment tax credits. Since the taxable income and taxable capital figures exceed $500,000 and $10,000,000, respectively, the amount eligible for the enhanced tax credit decreases.

Federally, expenditures eligible for the enhanced tax credit are eligible for a 35% tax credit, whereas expenditures not eligible only provide for a 15% tax credit. When you also consider the provincial tax credit implications, it’s critical for these companies to maintain sufficient expenditure pool levels.

One common method for ensuring low income and taxable capital figures is to declare bonuses for the owner-managers and to pay those bonuses out of the company to reduce taxable capital. This is a good opportunity to use RCAs. The top tax rate in seven of Canada’s thirteen provinces or territories is over 50%. Given the RCA withholding rates are currently 50%, this can provide a deferral of up to 4% depending on your province. When you add the additional payroll costs, this can result in significant savings.

How much should be contributed?

An employer must be careful not to contribute an unreasonable amount to the plan on behalf of an employee as it could result in the plan being re-characterized as an SDA.  The starting point for a reasonable DCP amount would be the 18% that is used to create RRSP deduction room annually. A higher rate would likely require a very strong argument as to why it’s reasonable.

A DBP requires a certain level of assets to be held within the plan to support the future pension obligations that an actuary has calculated. Given that the plan will require a certain amount, a reasonable contribution will be the amount that brings the assets of that plan to a sufficient level to fund that obligation. The pension benefit, however, must be considered a reasonable amount.  Again, a reasonable amount will vary based on the facts of each situation.

The CRA has indicated that it will permit a deduction for recognition of an employee’s years of services even if it occurred prior to the establishment of the RCA.1 Since past years of service can be recognized, large contributions may be eligible when the RCA is initially established.

Careful planning is required to ensure that the plan meets the criteria of an RCA as adverse tax effects could result otherwise.  You should seek professional advice if you are setting up an RCA.

Jesse Genereaux is a tax manager in the Durham office of Collins Barrow.

Want to get in touch with Jesse?
Connect with him by email at [email protected].

Related Topics:
More from this author
Local Business / 8 years ago

Selling your farmland – GST / HST implications

Community / 8 years ago

‘Doing Business in the US? What You Need to Know’, A Free Seminar

Business / 8 years ago

What is a Retirement Compensation Arrangement (“RCA”)?

Business

RFK Jr. says Hep B vaccine is linked to 1,135% higher autism rate

Published on July 1, 2025

By

From LifeSiteNews

By Matt Lamb

They got rid of all the older children essentially and just had younger children who were too young to be diagnosed and they stratified that, stratified the data

The Centers for Disease Control and Prevention (CDC) found newborn babies who received the Hepatitis B vaccine had 1,135-percent higher autism rates than those who did not or received it later in life, Robert F. Kennedy Jr. told Tucker Carlson recently. However, the CDC practiced “trickery” in its studies on autism so as not to implicate vaccines, Kennedy said.

RFK Jr., who is the current Secretary of Health and Human Services, said the CDC buried the results by manipulating the data. Kennedy has pledged to find the causes of autism, with a particular focus on the role vaccines may play in the rise in rates in the past decades.

The Hepatitis B shot is required by nearly every state in the U.S. for children to attend school, day care, or both. The CDC recommends the jab for all babies at birth, regardless of whether their mother has Hep B, which is easily diagnosable and commonly spread through sexual activity, piercings, and tattoos.

“They kept the study secret and then they manipulated it through five different iterations to try to bury the link and we know how they did it – they got rid of all the older children essentially and just had younger children who were too young to be diagnosed and they stratified that, stratified the data,” Kennedy told Carlson for an episode of the commentator’s podcast. “And they did a lot of other tricks and all of those studies were the subject of those kind of that kind of trickery.”

But now, Kennedy said, the CDC will be conducting real and honest scientific research that follows the highest standards of evidence.

“We’re going to do real science,” Kennedy said. “We’re going to make the databases public for the first time.”

He said the CDC will be compiling records from variety of sources to allow researchers to do better studies on vaccines.

“We’re going to make this data available for independent scientists so everybody can look at it,” the HHS secretary said.

Health and Human Services also said it has put out grant requests for scientists who want to study the issue further.

Carlson asked if the answers would “differ from status quo kind of thinking.”

“I think they will,” Kennedy said. He continued on to say that people “need to stop trusting the experts.”

“We were told at the beginning of COVID ‘don’t look at any data yourself, don’t do any investigation yourself, just trust the experts,”‘ he said.

In a democracy, Kennedy said, we have the “obligation” to “do our own research.”

“That’s the way it should be done,” Kennedy said.

He also reiterated that HHS will return to “gold standard science” and publish the results so everyone can review them.

Continue Reading

Business

Elon Musk slams Trump’s ‘Big Beautiful Bill,’ calls for new political party

Published on July 1, 2025

By

From LifeSiteNews

By Robert Jones

The Tesla CEO warned that Trump’s $5 trillion plan erases DOGE’s cost-cutting gains, while threatening to unseat lawmakers who vote for it.

Elon Musk has reignited his feud with President Donald Trump by denouncing his “Big Beautiful Bill” in a string of social media posts, warning that it would add $5 trillion to the national debt.

“I’m sorry, but I just can’t stand it anymore. This massive, outrageous, pork-filled Congressional spending bill is a disgusting abomination. Shame on those who voted for it: you know you did wrong. You know it,” Musk exclaimed in an X post last month.

Musk renewed his criticism Monday after weeks of public silence, shaming lawmakers who support it while vowing to unseat Republicans who vote for it.

“They’ll lose their primary next year if it is the last thing I do on this Earth,” he posted on X, while adding that they “should hang their heads in shame.”

The Tesla and SpaceX CEO also threatened to publish images branding those lawmakers as “liars.”

 

Trump responded on Truth Social by accusing Musk of hypocrisy. “He may get more subsidy than any human being in history,” the president wrote. “Without subsidies, Elon would probably have to close up shop and head back home to South Africa… BIG MONEY TO BE SAVED!!!”

Musk responded by saying that even subsidies to his own companies should be cut.

Before and after the 2024 presidential election, Musk spoke out about government subsidies, including ones for electric vehicles, stating that Tesla would benefit if they were eliminated.

This latest exchange marks a new escalation in the long-running and often unpredictable relationship between the two figures. Musk contributed more than $250 million to Trump’s reelection campaign and was later appointed to lead the Department of Government Efficiency (DOGE), which oversaw the termination of more than 120,000 federal employees.

Musk has argued that Trump’s new bill wipes out DOGE’s savings and reveals a deeper structural problem. “We live in a one-party country – the PORKY PIG PARTY!!” he wrote, arguing that the legislation should be knows as the “DEBT SLAVERY bill” before calling for a new political party “that actually cares about the people.”

In June, Musk deleted several inflammatory posts about the president, including one claiming that Trump was implicated in the Jeffrey Epstein files. He later acknowledged some of his comments “went too far.” Trump, in response, said the apology was “very nice.”

With the bill still under Senate review, the dispute underscores growing pressure on Trump from fiscal hardliners and tech-aligned conservatives – some of whom helped deliver his return to power. Cracks in the coalition may spell longer term problems for the Make America Great Again movement.

Continue Reading

Trending

X