Subsection 207.62(1) - Tax payable in respect of advantage
Articles
Jon Gilbert, "December 31, 2013 Compliance Planning for Leveraged RCA Arrangements", Tax For The Owner-Manager", Vol. 13, No. 3, July 2013, p. 7
Typical leveraged RCA arrangement (p.8)
In a typical leveraged RCA arrangement, a corporation (Opco) makes a tax-deductible contribution to an RCA, half of which is remitted to the CRA as refundable part XI.3 tax payable on the contribution. The RCA trust then borrows funds from an arm's-length lender, secured in part by the RCA trust's refundable part XI.3 tax balance, and makes an interest-bearing loan to Opco (the Opco loan).
Interest on Opco loan (p.8)
In a leveraged RCA arrangement, the Opco loan technically will be a prohibited investment for the RCA trust, notwithstanding that the loan may be grandfathered for the purposes of the penalty tax on prohibited investments under section 207.61. As a result, interest revenue received by an RCA on an Opco loan will be subject to the advantage tax because it is income from a prohibited investment, unless the Opco loan is grandfathered under the transitional rules related to the "advantage" provisions. The advantage tax payable under section 207.62 by the RCA custodian will be equal to 100 percent of the fair market value of the interest revenue received or receivable in each calendar year on the Opco loan, commencing in 2012.