CRA indicates that it likely is not problematic for an RRSP to make a 4900(1)(j.1) mortgage loan to its annuitant, who on-lends the proceeds interest-free to a wholly-owned corporation

CRA indicated that where an individual who is the annuitant of an RRSP receives an mortgage loan from the RRSP and uses the loan proceeds to make an interest-free loan to a corporation wholly-owned by the individual (the “Corporation”), with the Corporation using the proceeds to pay off a corporate line of credit, the interest on the Mortgage Loan may be deductible to the individual provided that the on-loan to the Corporation “increases the Corporation’s income-earning capacity (i.e., by reducing the Corporation’s interest expense) and the shareholders’ potential future dividend income from the Corporation.”

Assuming that the mortgage loan satisfies the conditions of Reg. 4900(1)(j.1) (e.g., satisfying the conditions for mortgage insurance), the loan likely would be considered to be acquired by the RRSP at fair market value and to have been made on arm’s length terms, so that the RRSP advantage and strip rules would not apply, provided that there was no default.

Neal Armstrong. Summaries of 1 June 2016 T.I. 2015-0601211E5 under s. 20(1)(c), Reg. 4900(1)(j.1), s. 207.01(1) – advantage – para. (d), and s. 207.01(1) – RRSP strip.