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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Why is insurance required on a mortgage within an RRSP?
Position: Explained requirement where mortgagor is the annuitant or related person.
Reasons: Required by 4900(4) and 4900(1)(j) of Regulations.
XXXXXXXXXX
2000-001397
March 16, 2000
XXXXXXXXXX, has asked us in his facsimile of March 4, 2000 (copy attached) to explain the registered retirement savings plan ("RRSP") qualified investment rules under the Income Tax Act (the "Act") and Income Tax Regulations (the "Regulations") respecting insured mortgages.
As provided in subsection 4900(4) of the Regulations a mortgage on real property situated in Canada, or an interest therein, is a qualified investment for an RRSP. However, if the mortgagor is the annuitant of the RRSP or a person with whom the annuitant does not deal at arm's length, paragraph 4900(1)(j) of the Regulations requires that the mortgage be insured under the National Housing Act or by a corporation offering its services to the public as an insurer of mortgages.
A person who is "related" to the annuitant does not deal at arm's length with the annuitant and a "related person" is defined in subparagraph 251(2)(b)(i) to include a corporation controlled by the annuitant (i.e., the majority of the shares are owned by the annuitant). Thus, if a corporation controlled by the annuitant is the mortgagor, the RRSP may only invest in the mortgage if it is insured in accordance with paragraph 4900(1)(j) of the Regulations.
In addition to the insurance requirement, where an RRSP is investing in a mortgage on land owned by the annuitant or a person related to the annuitant, the interest rate and other terms of the mortgage must reflect normal commercial practice and be administered as if it were a mortgage on property owned by a stranger. This requirement flows from the condition in paragraph 146(2)(c.4) of the Act that (except for certain advantages listed in that provision which are not relevant to this query) no benefit or advantage be conferred on the annuitant.
Yours truly,
P. Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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