Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Can a Financial Institution secure loans with payments to be made out of an RRSP?
Position:
The question must be answered on a case-by-case basis with the involvement of the Registered Plan Directorate
Reasons: Based on past correspondence a general reply should be given
XXXXXXXXXX 2001-009909
M. P. Baldwin, CA
February 21, 2002
Dear XXXXXXXXXX:
This is in reply to your facsimiles of August 30 and September 4, 2001 in which you request our views on whether a "Stop Transfer/Redemption/Change of Dealer" form that you have been requested to accept would result in the RRSPs being security for loans.
The particular situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R4, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments, which may be of assistance.
In order to definitively reply to your enquiry it would be necessary to have not only the copy of the "Stop Transfer/ Redemption/ Change of Dealer" form submitted with your letter, but also a copy of the draft loan agreement and a copy of the related RRSP. Other required information would include the terms of the related loan and details of the relationship between the issuer of the RRSP and the lender. In replying to your request, issues that we would be considering would include the following:
1. Whether it could be said that an advantage has been extended to the annuitant that is conditional upon the existence of the RRSP. If so, whether the relationship between the issuer and the lender is such that it could be said that the issuer is party to the extension of the advantage with the result that the penalty under subsection 146(13.1) of the Income Tax Act (the "Act") would be exigible.
2. Whether it could be said that the loan is made on the security of a right under the RRSP such that subsection 146(13) of the Act would deem there to be a new plan substituted for the RRSP.
3. If subsection 146(13) applies, whether it could be said that the new plan (which is essentially the old plan with the loan arrangement superimposed) does not comply with the requirements of section 146 of the Act for registration with the result that subsection 146(12) of the Act would apply to include in the annuitant's income the fair market value of the plan.
As indicated above, we are prepared to further consider these and other relevant issues with respect to the proposed loan arrangement should you decide to request an advance income tax ruling.
We trust our comments are of assistance.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
c.c.: John O'Meara
Registered Plan Directorate
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