It might, but let’s first define what an RCA is and how it works. Then we can say where we think it should be used.

A Retirement Compensation Arrangement is defined in the Income Tax Act. In general terms, it is a plan, other than a registered pension, whereby a company puts money aside for an employee for retirement. The payments to the RCA are deductible to the company and are not income to the employee, but 50% of the payments are subject to a special “refundable tax.” That “refundable tax” is refunded at retirement at the rate of $1.00 refunded for every $2.00 of retirement income.

When does an RCA make sense? It is most common for key employees, and can be a powerful tool for rewarding and retaining such employees. As an RCA is generally not subject to provincial pension legislation, the employer can define when and if the employee gets the funds.

An RCA can also make sense for an owner of a business where the owner knows he or she will retire offshore, or sometimes where a company is about to be sold. An RCA requires careful planning. We have the resources to guide our clients through the issues.