Chris Lang, Keaton Buchberger, "The RRSP Trap: A Cautionary Illustration of the Risk of Non-Conventional Investment Structures", Tax for the Owner-Manager, Vol. 25, No. 2, April 2025, p. 7

Summary Under
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(i) - Subparagraph 4900(1)(i)(ii)

Description of structure for RRSP funding of Realtyco controlled by Pubco (p. 7)

  1. The following arrangement is now being marketed as a structure for facilitating the use of RRSP funds to invest in real estate:
  2. A corporation (“Pubco”) whose shares listed on a designated stock exchange in Canada subscribes for voting preferred shares of a Canadian private corporation (Realtyco) so that it is controlled by Pubco.
  3. The RRSPs of various investors subscribe for interest-bearing debentures of Realtyco, with Realtyco using such funds to acquire real estate.
  4. Such investors subscribe for the common shares of Realtyco outside of their RRSPs.

RRSP eligibility (pp. 7-8)

  • Under Reg. 4900(1)(i)(ii), debentures issued by a corporation controlled by a corporation whose shares are listed on a designated stock exchange in Canada are qualified investments for most registered plans including RRSPs.
  • If Pubco ceases to control Realtyco at any point, or its shares are delisted, the debentures will become non-qualified investments.
Summary Under
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Advantage - Paragraph (a)

RRSP annuitants have their RRSPs subscribe for debentures of Realtyco to leverage their common share investments in Realtyco (p. 7)

The following arrangement is now being marketed as a structure for RRSP funds to be invested in real estate:

  • Pubco, whose shares listed on a designated stock exchange in Canada, subscribes for voting preferred shares of a Canadian private corporation (Realtyco) so that it is controlled by Pubco.
  • The RRSPs of various investors subscribe for interest-bearing debentures of Realtyco, with Realtyco using such funds to acquire real estate.
  • Such investors subscribe for the common shares of Realtyco outside of their RRSPs.

Under Reg. 4900(1)(i)(ii), debentures issued by a corporation controlled by a corporation whose shares are listed on a designated stock exchange in Canada are qualified investments for most registered plans including RRSPs.