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:
Is a mortgage on land situated in Canada a qualified investment for a Registered Retirement Savings Plan where the mortgage is held by a trust for the benefit of all investors (e.g. an RRSP) and each investor's interest in the trust is evidenced by a certificate of indebtedness (the "Certificate")?
Position:
"Yes" under current law. Will be "yes" also if proposed change to paragraph 4900(1)(j) becomes law.
Reasons:
The Certificate represents an undivided interest in the mortgage on the property. The trust is an agent of the Certificate holder for tax purposes.
XXXXXXXXXX 2001-008715
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, requesting an advance income tax ruling on behalf of XXXXXXXXXX.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. XXXXXXXXXX.
2. XXXXXXXXXX.
3. The Church owns real estate legally described as XXXXXXXXXX (the "Property").
4. The Church plans to build a place of worship on the Property. The total cost of constructing the new place of worship is expected to be in the order of $XXXXXXXXXX. Construction is expected to commence within XXXXXXXXXX.
5. In order to raise funds to partially finance the construction of the new place of worship, the Church has created the XXXXXXXXXX (the "Trust") as evidenced by a Trust Indenture. The Trust has a registered mortgage on the Property for the principal amount of $XXXXXXXXXX.
Proposed Transactions
6. The trustees of the Trust propose to issue a maximum of XXXXXXXXXX certificates (the "Certificates") to the members of the congregation or "friends"of the Church. Each Certificate will be for an amount of not less than $XXXXXXXXXX with the aggregate amount not to exceed $XXXXXXXXXX.
7. The Certificates will evidence an undivided interest in the mortgage on the Property held by the Trust.
8. The trustees of the Trust will be responsible for collecting interest and principal of the mortgage from the Church and for payment of interest and principal to the holders of the Certificates.
9. In the event of default under the mortgage, the trustees of the Trust will be authorized to act on behalf of the holders of the Certificates and to exercise their rights as provided in, and in accordance with, the Trust Indenture. The trustees of the Trust shall not be entitled to stipulate or agree to any change to the Trust Indenture other than the substitution of a trustee in accordance with the terms of the Trust Indenture without the consent by a majority of the votes cast by the holders of the Certificates at a meeting. Each holder of a Certificate will have one vote for each dollar of principal receivable as evidenced by the Certificate. Accordingly, we understand the trustees will act in the capacity of agent of the holders of Certificates under the Trust Indenture.
10. Subscriptions for Certificates shall be accepted in minimum amounts of $XXXXXXXXXX, but may be accepted in any round number of thousands of dollars from any single subscriber in the amount of $XXXXXXXXXX or more.
11. The subscriptions may be jointly or commonly held between members of a household or members of a household and their controlled corporations.
12. A self-directed registered retirement savings plan ("RRSP") may subscribe for Certificates in which case the trustee of the RRSP shall be recorded in its representative capacity as the holder of the Certificate.
13. All the Certificates will earn an annual interest rate of XXXXXXXXXX% per annum on the outstanding principal.
14. All Certificates will rank pari passu in all respects.
15. The Certificates may be redeemed prior to maturity but only at the option of the Church.
16. The first Certificates will be issued upon receipt of a favourable advance income tax ruling from the Canada Customs and Revenue Agency.
Purpose of the Proposed Transactions
The purpose of the proposed transactions is to provide the Church with a source of funding to finance the construction of the church.
To the best of your knowledge and that of the Church, none of the issues in respect of which the ruling is being requested are:
i. in an earlier return of the Church or a related person;
ii. being considered by a tax services office or taxation centre in connection with a previously filed tax return of the Church or a related person;
iii. under objection by the Church or a related person;
iv. before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or
v. the subject of a ruling previously issued by the Canada Customs and Revenue Agency.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, we rule as follows:
Provided that the annuitant of an RRSP that may acquire Certificates issued by the Trust deals at arm's length with the Church, the Certificates will, by virtue of paragraph (d) of the definition "qualified investment" in subsection 146(1) of the Act and subsection 4900(4) of the Income Tax Regulations ("Regulations"), be a qualified investment for the RRSP.
The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and is binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed on or by XXXXXXXXXX.
Opinion
Provided that proposed paragraph 4900(1)(j) of the Regulations is enacted substantially as currently drafted in conjunction with the proposed repeal of subsection 4900(4) of the Regulations, it is our opinion that, provided the annuitant of an RRSP deals at arm's length with the Church, the Certificates will continue to be a qualified investment for the RRSP pursuant to paragraph (d) of the definition of "qualified investment" in subsection 146(1) of the Act.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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