Wealth Strategies: Retirement Compensation Arrangements (RCAs) for Business Owners

For incorporated business owners, retirement planning can present unique challenges. While traditional tools such as RRSPs, TFSAs, and Individual Pension Plans (IPPs) remain valuable, they are subject to contribution limits and may not fully address the needs of individuals with growing corporate cash flow.

This can create a disconnect between wealth accumulated within a corporation and the ability to convert that wealth into future personal retirement income.

What Is an RCA?

A Retirement Compensation Arrangement (RCA) is a planning structure established under the Income Tax Act that allows corporations to set aside funds for future retirement income.

Key characteristics include:

• Contributions made by the corporation are generally tax-deductible
• Funds are held and grow within the RCA structure
• Benefits are taxed in the hands of the recipient upon withdrawal, typically in retirement

RCAs are not intended to replace traditional registered plans, but rather to complement them once contribution limits have been reached.

The Planning Gap

Once registered plans are maximized, business owners are often left with two primary options:

• Taxable extraction, such as salary, dividends, or bonuses, which are subject to personal tax at potentially high rates
• Corporate deferral, where funds remain in the corporation and are invested, often subject to higher taxation on passive investment income

Neither approach is specifically designed to function as a structured retirement income solution.

When RCAs May Be Considered

RCAs are typically used in situations where:

• The business owner has consistent or surplus corporate earnings
• Registered plans have been fully utilized
• There is a desire to create a more structured, pension-like retirement income stream

They may also be used in certain corporate or family employment structures, or as part of long-term retention planning for key employees.

Important Considerations

The decision to implement an RCA is a structural planning decision that impacts how income is earned, deferred, and ultimately distributed. Proper design and ongoing administration are critical.

RCAs require coordination between financial advisors, accountants, tax professionals, and actuaries. If not structured correctly, there is a risk that the Canada Revenue Agency could reclassify the arrangement as a salary deferral arrangement, resulting in immediate taxation.

Professional Guidance

Retirement Compensation Arrangements are complex and may not be suitable for all situations. Business owners should consult with qualified financial, tax, and legal professionals before implementing any such structure.

https://www.advisor.ca/tax/tax-strategies/mutual-funds-and-segregated-funds-5-points-to-note-for-tax-season-and-beyond/

©2026 Milestone Wealth Management Ltd. All rights reserved. Information, opinions, and estimates are provided for general information purposes only and may change without notice. This content is not intended as investment or tax advice. Readers should not act on this information without consulting Milestone, their investment advisor, tax advisor, financial planner, or legal professional. This communication is intended for Canadian residents only and does not constitute an offer or solicitation in any jurisdiction where such an offer is not permitted.