What is an RCA pension plan?

A Retirement Compensation Arrangement (RCA) is the Income Tax Act's retirement planning solution for affluent professionals, business owners and corporate executives. An RCA enables you to supplement your pensions and registered retirement savings plans while increasing your financial and retirement security. A contribution to an RCA provides an immediate tax deduction to an employer. Therefore, it is not taxable until the employee receives the benefit in a future year, when they are potentially in a lower tax bracket. Keep in mind, however, that the contributions to the RCA are subject to a 50% refundable tax.

• Contributions are 100% tax-deductible by the employer and are a non-taxable benefit in the employee's hands. Therefore, taxes do not apply until the money is withdrawn during retirement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 the previous RRSP contribution room before 1991
• An RCA provides a pension/retirement benefit for executives who cannot make RRSP or pension contributions, due to non-resident status
• Assets held in an RCA are creditor-proof, separate from the sponsoring company's assets, and 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% 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% 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