Tax Planning and Preparation

The RCA is a retirement trust that allows for money, usually large sums like severance payments for executives, retirement bonuses, or compensation for business owners to be deposited into an RCA to mitigate tax. When funds are deposited from a company or employer into an RCA, the plan member is not taxed. The plan member can then later drawdown amounts of their choice after they’ve had a change in employment. For example, if an employee were to receive a $500k severance, instead of paying 48% tax on that severance (assuming the executive is already in the highest tax bracket), they could draw down $100k over a 5-year period, drastically reducing their tax paid on the severance and keeping more in their pocket.

The RCA is a flexible retirement trust that lowers the participant’s tax rate by granting them flexible withdrawals from it. It is creditor protected and assets are taxed only at the time of withdrawal.

The RCA is ideal for high-income earners ($150,000+) such as business owners, athletes, executives, and incorporated professionals who wish to sustain their standard of living into retirement. A Retirement Compensation Arrangement (RCA) represents the highest level of retirement program available in Canada. The RCA is particularly popular with business owners who have cash in their corporations that they would like to withdraw without having to pay personal tax at the time the funds are withdrawn. This retirement trust is also well-suited for executives receiving large lumpsum payments such as severance or retirement bonuses.

Yes, unfortunately. Layoffs have increased during these difficult times and the RCA is the best way to ensure employees are better off with higher after-tax severances.

The RCA has come and gone in popularity over the years, largely due to the Canadian tax policy. Now that we are in a high tax environment (and likely increasingly post COVID-19), the RCA has become incredibly popular again. That said, many corporations aren’t that familiar with this powerful retirement tool and view it as a risk until they better understand how it works.

In our experience, it’s typically the executive getting bonused or severed who learns about this option from the advisory team here at CH Financial. If you are receiving a bonus or severance payment and would like to keep 40%+ more, then we highly recommend talking to our team, so you can suggest this option to your HR department. Now is a great time to call CH Financial because our team can answer any questions that your employer may have. As tax preparation specialists we are here to help you. We appreciate that it’s a very delicate conversation, but keep in mind that your employer receives the same tax deduction whether they set up the RCA or not, and once the final agreed-upon payment is made and/or the employee leaves the company, their liability with the RCA ceases.

The RCA will roll over to your spouse or significant other (if applicable). When your spouse or significant other passes away, the RCA can be passed down to children with no taxable disposition on the last parent’s death. This is an excellent way to pass money down to the next generation tax effectively while allowing your children or beneficiaries to draw down from the RCA for a period of 20 plus years.

Typically, 1-2 weeks. Your CH advisor will work with you and your employer to have them sign an agreement to set up the RCA. Once this has been done, the program can be funded.

The RCA is a retirement trust that allows for money, usually large sums like severance payments for executives, retirement bonuses, or compensation for business owners to be deposited into an RCA to mitigate tax. When funds are deposited from a company or employer into an RCA, the plan member is not taxed. The plan member can then later drawdown amounts of their choice after they’ve had a change in employment. For example, if an employee were to receive a $500k severance, instead of paying 48% tax on that severance (assuming the executive is already in the highest tax bracket), they could draw down $100k over a 5-year period, drastically reducing their tax paid on the severance and keeping more in their pocket.