Business
What is a Retirement Compensation Arrangement (“RCA”)?
An RCA is a plan that is funded by contributions from employers and employees to a custodian who manages the funds. RCAs are used to fund the retirement of an employee, their loss of employment or a substantial change in the services that they provide.
How it works?
Employers make annual tax deductible contributions to an RCA that are subject to a refundable 50% withholding tax. Since the payments are not made to the employee, they are not subject to any tax implications in the year the contributions are made. When payments are made from the plan to the employee, the refundable taxes paid are recovered at the same rate (e.g. $1 of every $2 paid). All income earned within the plan is subject to the refundable 50% tax and is recoverable at the same rate as above. The employee pays personal tax on distributions from the RCA in the year they are received.
Employees can also make tax deductible contributions to an RCA. The contributions are similarly considered deductible and subject to the 50% refundable withholding tax.
Types of plans
An RCA can be set up as either a Defined Benefit Plan (“DBP”) or a Defined Contribution Plan (“DCP”). As the title suggests, a DBP provides employees with a defined pension amount annually, upon retirement. Whereas employees on a DCP will receive only what was contributed to the plan, plus any income earned or less any losses incurred, a DBP will require the periodic involvement of an actuary to determine whether the plan is properly funded.
A DBP puts the risk of losses on investments in the hands of the employer and a DCP passes that risk to the employees as they will receive what is remaining in the plan.
Who will benefit from RCAs?
Employees
Employees who participate in an RCA will enjoy future pension benefits and peace of mind knowing that, if the employer were to close down and they lost their employment, the assets of the RCA would be protected against the creditors of the employer.
The 50% refundable withholding rate is currently less than the top tax bracket in a number of provinces. As such, the after-tax investment for the pension is no longer considered a disadvantage to RCAs for high-income earning employees as the plan will invest 50% of the amount they are paid as opposed to less than 50%, had they been paid as a salary.
Contributions to the RCA by an employer will not reduce the RRSP contribution room for the employee, which is not the case for contributions made to a Retirement Pension Plan (“RPP”).
Further tax savings can be obtained by paying the employees out of the RCA in future years when their income levels are lower and subject to lower marginal tax rates. When you consider the ability to include income in lower income earning years, employees living in provinces and territories not subject to >50% tax at the top rate can still benefit from an RCA.
Employers
Employers may wish to provide a retirement package for their employees but not pay the high costs of operating an RPP or an Individual Pension Plan (“IPP”). If the owner-manager of the company or someone already within the company completes the required remittance forms and bookkeeping for the plan, the costs associated with an RCA would include the preparation of the trust return, identified above, and investment advisor fees, if an advisor is used. Additional costs may be applicable for DPBs since possible periodic actuarial valuations may be needed to ensure the plan is properly funded.
Employers can also utilize RCAs for what’s referred to as “Golden Handcuffs,” meaning they can require an employee to meet certain length-of-employment requirements before the pension contributions vest. This will help employers retain key employees that are vital to their operations.
Tax benefits for employer
One group that may benefit most from these plans are companies involved in Scientific Research and Experimental Development (“SRED”) that must maintain low taxable income and taxable capital figures to retain their benefits from the enhanced investment tax credits. Since the taxable income and taxable capital figures exceed $500,000 and $10,000,000, respectively, the amount eligible for the enhanced tax credit decreases.
Federally, expenditures eligible for the enhanced tax credit are eligible for a 35% tax credit, whereas expenditures not eligible only provide for a 15% tax credit. When you also consider the provincial tax credit implications, it’s critical for these companies to maintain sufficient expenditure pool levels.
One common method for ensuring low income and taxable capital figures is to declare bonuses for the owner-managers and to pay those bonuses out of the company to reduce taxable capital. This is a good opportunity to use RCAs. The top tax rate in seven of Canada’s thirteen provinces or territories is over 50%. Given the RCA withholding rates are currently 50%, this can provide a deferral of up to 4% depending on your province. When you add the additional payroll costs, this can result in significant savings.
How much should be contributed?
An employer must be careful not to contribute an unreasonable amount to the plan on behalf of an employee as it could result in the plan being re-characterized as an SDA. The starting point for a reasonable DCP amount would be the 18% that is used to create RRSP deduction room annually. A higher rate would likely require a very strong argument as to why it’s reasonable.
A DBP requires a certain level of assets to be held within the plan to support the future pension obligations that an actuary has calculated. Given that the plan will require a certain amount, a reasonable contribution will be the amount that brings the assets of that plan to a sufficient level to fund that obligation. The pension benefit, however, must be considered a reasonable amount. Again, a reasonable amount will vary based on the facts of each situation.
The CRA has indicated that it will permit a deduction for recognition of an employee’s years of services even if it occurred prior to the establishment of the RCA.1 Since past years of service can be recognized, large contributions may be eligible when the RCA is initially established.
Careful planning is required to ensure that the plan meets the criteria of an RCA as adverse tax effects could result otherwise. You should seek professional advice if you are setting up an RCA.
Jesse Genereaux is a tax manager in the Durham office of Collins Barrow.
Want to get in touch with Jesse?
Connect with him by email at [email protected].
FBI Director Kash Patel issued a blunt warning over the weekend as federal investigators continue unraveling a sprawling fraud operation centered in Minnesota, saying the hundreds of millions already uncovered represent “just the tip of a very large iceberg.”
In a lengthy statement posted to social media, Patel said the Federal Bureau of Investigation had quietly surged agents and investigative resources into the state well before the scandal gained traction online. That effort, he said, led to the takedown of an estimated $250 million fraud scheme that stole federal food aid intended for vulnerable children during the COVID pandemic.
According to Patel, the investigation exposed a network of sham vendors, shell companies, and large-scale money laundering operations tied to the Feeding Our Future case. Defendants named by the FBI include Abdiwahab Ahmed Mohamud, Ahmed Ali, Hussein Farah, Abdullahe Nur Jesow, Asha Farhan Hassan, Ousman Camara, and Abdirashid Bixi Dool, each charged with offenses ranging from wire fraud to conspiracy and money laundering.
Patel also said Abdimajid Mohamed Nur and others were charged in a separate attempt to bribe a juror with $120,000 in cash. He noted that several related cases have already resulted in guilty pleas, prison sentences of up to 10 years, and nearly $48 million in restitution orders.
Despite those outcomes, Patel warned the case is far from finished.
“The FBI believes this is just the tip of a very large iceberg,” he said, adding that investigators will continue following the money and that the probe remains ongoing. Patel further confirmed that many of those convicted are being referred to immigration authorities for possible denaturalization and deportation proceedings where legally applicable.
The renewed focus follows a viral video circulated by independent journalist Nick Shirley, which appeared to show multiple childcare and learning centers operating as empty or nonfunctional storefronts. The footage sparked immediate backlash from Republicans, including Vice President JD Vance.
House Majority Whip Tom Emmer accused Minnesota Gov. Tim Walz of sitting idle while massive sums were stolen from taxpayers. Walz addressed the allegations during a November press conference, before the full scope of the fraud became public, saying the scandal “undermines trust in government” and threatens programs meant to help vulnerable residents.
“If you’re committing fraud, no matter where you come from or what you believe, you are going to go to jail,” Walz said at the time.
Authorities say the alleged schemes date back to at least 2015, beginning with overbilling Minnesota’s Child Care Assistance Program and later expanding into Medicaid-funded disability and housing programs. One such housing initiative, aimed at helping seniors and disabled residents secure stable housing, was shut down earlier this year after officials cited what they described as large-scale fraud.
The fallout has already reached the federal level. Last month, President Trump announced the suspension of Temporary Protected Status for Somali nationals, arguing that Minnesota had become a hub for organized welfare fraud and money laundering activity.
Vice President JD Vance is giving public credit to a YouTube journalist for doing what he says legacy media and elite institutions have failed to do: follow the money in Minnesota. In a post on X, Vance praised independent reporter Nick Shirley for digging into alleged fraud networks tied to the state, saying Shirley “has done far more useful journalism than any of the winners of the 2024 Pulitzer prizes.” The comment was a direct response to a video Shirley shared online documenting what he described as widespread fraud, with Shirley claiming his team identified more than $110 million in suspicious activity in a single day while confronting facilities allegedly receiving millions in public funds.
Shirley’s reporting has been circulating widely among conservatives, with commentators amplifying clips of him visiting supposed daycare and education centers that appeared inactive despite receiving massive federal aid. Conservative media personality Benny Johnson said Shirley had exposed more than $100 million in Minnesota Somali-linked fraud routed through fake daycare and healthcare fronts, adding to the pressure on state leadership. The issue gained further traction after Tom Emmer, Minnesota’s top House Republican, demanded answers from Gov. Tim Walz following a viral clip showing Shirley confronting workers at an alleged daycare in South Minneapolis. Shirley reported the center, called the “Quality Learning Center,” showed no visible activity despite claims it served up to 99 children, and even misspelled “learning” on its signage. As Shirley approached, a woman inside was heard shouting “Don’t open up,” while incorrectly accusing him of being an ICE agent.
🚨 Here is the full 42 minutes of my crew and I exposing Minnesota fraud, this might be my most important work yet. We uncovered over $110,000,000 in ONE day. Like it and share it around like wildfire! Its time to hold these corrupt politicians and fraudsters accountable
We ALL… pic.twitter.com/E3Penx2o7a
— Nick shirley (@nickshirleyy) December 26, 2025
The controversy builds on earlier reporting from City Journal, which published a November investigation citing federal counterterrorism sources who said millions of dollars siphoned through Minnesota fraud schemes had been sent overseas, with some of the money allegedly ending up in the hands of Al-Shabaab. One confidential source quoted in the report bluntly claimed, “The largest funder of Al-Shabaab is the Minnesota taxpayer.” Since that report, the scrutiny has widened inside the Trump administration. Treasury Secretary Scott Bessent has announced that the Treasury Department is examining whether Minnesota taxpayer funds were diverted to terrorist-linked groups, while Education Secretary Linda McMahon has publicly called on Walz to resign amid separate allegations of large-scale education fraud within the state’s college system.
Taken together, the attention from Vance, congressional Republicans, and multiple federal agencies has elevated Shirley’s reporting from viral internet content to a flashpoint in a broader debate over fraud, accountability, and the role of independent journalists. For the vice president, the message was clear: real accountability sometimes comes not from prize committees or press rooms, but from outsiders willing to ask uncomfortable questions and stand in front of locked doors with a camera rolling.
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