Air Canada pension trust tax exemption

Summary#

The final rule called Regulations Amending the Income Tax Regulations (Prescribed Arrangement — Air Canada) updates a 2009 tax accommodation for a special-purpose trust that holds Air Canada shares. In practice, it keeps that trust exempt from the retirement compensation arrangement (RCA) refundable tax so the trust can be used under the newer 2022 agreement and must be wound up by December 31, 2037. The amendment is treated as in force from January 1, 2024 and was published on March 26, 2025.

What it does#

• Allows a special-purpose trust to hold shares of Air Canada under the original June 2009 memorandum of understanding and the April 2022 letter of intent.
• Says money the trust receives from those shares can only be paid out if:
  • each of the trade unions directs the trustee to contribute the money to one or more registered pension plans that include Air Canada as an employer, or
  • the money is paid to people in the way described in the April 2022 letter of intent (for example, lump sums or severance as agreed).
• Requires that all of the trust’s property be distributed no later than December 31, 2037.
• Confirms that, if these conditions are met, the trust remains excluded from being an RCA and from the 50% refundable tax that normally applies to RCAs.
• The rule is treated as having come into force on January 1, 2024.

Who's affected#

• Air Canada as the employer and owner of the original shares held in trust.
• Employees and pensioners of Air Canada, and the trade unions that represent them, because the rule lets the trust fund pension contributions or make the additional payments negotiated in 2022.
• The trust’s trustee and the Canada Revenue Agency for tax administration and filings.
• The change is narrow and does not broadly affect other employers or small businesses.

Why it matters#

• It preserves a tax break that prevents the trust from being hit with the 50% refundable tax on contributions and income. That makes it practical for the trust to be used to support pensions and to pay the lump sums or severance agreed in 2022.
• For Air Canada retirees and workers, it clears the way for additional payments negotiated with their unions without triggering heavy tax charges at the trust level.
• The rule has a retroactive start date (January 1, 2024), which can affect tax reporting for that year. The arrangement must end by December 31, 2037, so the relief is time-limited.