Following up on announcements made in its 2023 budget, the Federal government passed legislation which received royal assent on June 20, 2024 which will exempt fees paid on or after March 28, 2023 for securing or renewing letters of credit or surety bonds for certain Retirement Compensation Arrangements (RCAs) that are unfunded. The issue was with respect to the 50% refundable tax rule where such fees paid annually to a financial institution were considered a contribution to the RCA and required a matching amount be submitted to a non-interest-bearing refundable tax account held by the Canada Revenue Agency. When retirement benefits become due from an unfunded RCA, the employer pays them out of its revenues, making it difficult to recover the refundable tax. This legislative change also allows employers to request a refund of previously remitted refundable taxes attracted by these fees or premiums starting in 2024. To apply to receive a refund, it must be made in the prescribed form and manner, which has not been released yet but is believed it would be part of filing the next T3-RCA return.
This measure will help to address the issue of escalating refundable tax balances faced by employers with unfunded RCAs.
Should you have any questions on the above, we are available to help provide answers and support you in this process.
Glenn Smith
Principal