A Retirement Compensation Arrangement (RCA) is an arrangement defined in subsection 248(1) of the Income Tax Act (Canada) under which an employer, former employer, or in some cases an employee, makes contributions to a custodian. The custodian holds the funds in trust with the intent of eventually distributing them to the employee (beneficiary) on, after, or in view of retirement, other severance from employment, or any substantial change in the services the employee provides.

Advantages of an RCA:

• Significantly higher contribution limits than registered plans.
• Immediate deduction to employer and not taxable to employee until paid.
• Flexible investment options.
• Allows deduction at current high tax rates and deferral of recognition of income by employee to future years at potentially lower tax rates.
• High benefit security as funds are held by custodian in trust.
• Flexible settlement options allowing member control over timing of income recognition.
• Does not affect RRSP or RPP (Registered Pension Plan) contribution limits.

Obviously, RCAs require a specialty in areas such as accounting, legal, employment and tax law and employee benefit plan construction. Many employers and their accounting professionals will need to seek educational services to aid them in the RCA setup, maintenance and wind-up stages. Therefore, it is worth the time and money to hire an employee benefit consultant to assist in the design, implementation, maintenance and wind-up of an RCA solution. IRONSHIELD Financial Planning can assist you with the entire process.