Retirement Compensation Agreement

Save income taxes, fund retirement and protect your assets with an RCA.

A retirement compensation arrangement (RCA) is a plan or arrangement between an employer and an employee under which:

The employer or employee makes contributions to a custodian of the RCA trust; and the custodian may be required to make distributions to the employee or another person on, after, or in view of the employee’s retirement, the loss of an office or employment, or any substantial change in the services the employee provides.

Advantages of an RCA

• Contributions are 100 per cent tax-deductible by the employer, and are a non-taxable benefit in the hands of the employee. Taxes do not apply until the money is withdrawn during retirement.
• RCAs are exempt from payroll and healthcare taxes.
• RCAs are exempt from provincial pension regulators.
• Assets in an RCA investment account compound tax-free.
• An RCA plan can provide “golden handcuffs” as a reward for continued service.
• An RCA allows the buyback of previous RRSP contribution room prior to 1991.
• An RCA provides a pension/ retirement benefit for executives who are not permitted to make RRSP or pension contributions due to non-resident status.
• Assets held in an RCA are creditor-proof and are separate from the sponsoring company’s assets, and are therefore protected from the sponsor’s creditors.
• Assets in an RCA are excluded from the holder’s estate and are not subject to probate fees when a beneficiary is named.
• Owners of RCAs can arrange to borrow up to 90 per cent of the amount of the RCA contribution and loan it back to their operating company.
• Owners/key employees can retire offshore to a lower-tax rate jurisdiction where they can pay as low as 15 per cent tax on the proceeds from their RCA.
• RCAs can be set up to defer tax on severance packages.
• Small- and medium-sized business owners and partners can use an RCA as part of their exiting and succession planning.