RETIREMENT COMPENSATION ARRANGEMENTS

What is an RCA?

A Retirement Compensation Arrangement (RCA) is an un-registered retirement plan funded by, and tax-deductible for your company or employer. Every dollar contributed by your employer or company, earned or gained through growth in value, is held in trust, half in a refundable tax account and half in your RCA trust account. Upon retirement these funds are paid out and taxed at your post-employment tax rate. The non-interest bearing refundable tax account is held by the Canada Customs and Revenue Agency until your payments begin.

Benefits of an RCA

If you are earning a high income and want to increase your security or protect yourself from corporate insolvency, an RCA is a flexible, secure and tax-effective tool. It is used by many of my clients who are physicians and entrepreneurs. It can increase their retirement income or help finance their business. It offers flexibility in funding, in the investment strategy for the funds in trust, and in the dispersal at time of pay out. Also, it is protected from future management or new company owners in the case of succession, mergers or acquisitions. There are no restrictions on the types of investments an RCA can hold.

Why was it established?

RCAs were introduced in 1986 to give all people at comparable income levels access to comparable tax assistance for retirement saving. RCAs achieve this by supplementing registered pension and retirement savings plans equally for employees or owner managers.

Funding an RCA

The way in which your RCA is funded will make a significant difference to the security, tax effectiveness and borrowing power that it provides. We help you choose the right funding approach that suits your needs from the four principal alternatives:

1. With eligible life insurance plans (the growth in value is tax free until the RCA begins to pay out)
2. by contributions over time,
3. with letters of credit, and fully funded at set-up.