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: Does the Act permit a financial institution to prevent the transfer of an RRSP while the annuitant has an loan outstanding with the FI?
Position: Subsection 146(10) and paragraph 146(2)(c.3) may apply.
Reasons: Will depend on the terms of the loan and the RRSP, and the relationship between the annuitant and the issuer.
XXXXXXXXXX 2000-003715
S. E. Thomson
Attention: XXXXXXXXXX
September 27, 2000
Dear XXXXXXXXXX:
Re: Restrictions on transfers of an RRSP while a loan is outstanding
This is in reply to your letter of July 10, 2000 in which you ask for our views on the application of the Income Tax Act (the "Act") to a situation where, as part of a loan agreement with a financial institution, an annuitant of a registered retirement savings plan (an "RRSP") has agreed not to transfer the RRSP until the loan is paid in full.
Subsection 146(10) of the Act sets out the consequences to an annuitant if a trust governed by an RRSP "uses or permits to be used any property of the trust as security for a loan". In such a case, the fair market value of the property will be included in the annuitant's income.
Paragraph 146(2)(c.3) of the Act sets out, as a requirement for registration, that where the retirement savings plan involves a depositary, the plan must contain the provisions that:
(i) the depositary has no right of offset as regards the property held under the plan in connection with any debt or obligation owing to the depositary, and
(ii) the property held under the plan cannot be pledged, assigned or in any way alienated as security for a loan or for any purpose other than that of providing for the annuitant, commencing at maturity, a retirement income;
If a retirement savings plan has been registered with the above provisions, and is subsequently amended so that it no longer complies with paragraph 146(2)(c.3) of the Act, subsection 146(12) of the Act will apply to include in the annuitant's income the fair market value of all of the property of the RRSP.
Accordingly, in order to determine whether the RRSP has contravened subsection 146(10) or paragraph 146(2)(c.3) of the Act, we would need to know:
- whether the plan was a trust or a depositary,
- the terms of the loan agreement, and
- the terms of the plan document
Questions regarding registration of a plan, and whether the terms of a plan document satisfy the requirements of the Act should be directed to the Registered Plans Division, 45 Sacré-Coeur Boulevard, Hull, Quebec, K1A 0L5.
We trust that our comments have been helpful.
Yours truly,
P. Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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