RCAs: Still Relevant in 2016?
A unique aspect of RCAs is the refundable tax concept where one-half of all contributions and investment income earned by the RCA Trust is remitted into a Refundable Tax Account (RTA) administered by CRA. The RTA does not earn any investment income. Any investment income earned by the RCA Trust loses its investment character (i.e., for example, dividends and capital gains lose their preferential character). The RCA receives refunds from the RTA when benefits are paid. $1 is refunded from the RTA for each $2 paid in benefits from the RCA Trust. Clearly, the purpose of the RTA is to limit the tax-deferral effectiveness of an RCA and make the entire structure effectively tax-neutral.