This Income Tax Act permitted plan allows tax-deductible contributions that are either contributed to an RCA by the taxpayer or by the employer. The income received by the individual is treated like pension income and will be taxed accordingly. A lower tax rate will be used if the individual is no longer a Canadian tax player if they emigrate from Canada.
An RCA should be considered when the following occurs:
- The earnings are generally greater than the small business tax limit after paying the required amount to its owners
- Personal and corporate income taxes are declining where the company resides
- A company's key individuals have little to no pension benefits
- The key individuals of a company intend to sell the business when they retired and want to emigrate from Canada