2 May 2002 External T.I. 2002-0132715 - MORTGAGES HELD AS INVESTMENTS - RRSP

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

1. Can the original value of a mortgage be used to calculate the income inclusion required where property is withdrawn from an RRSP or RRIF?

2. How is the fair market value of a mortgage held as an investment in an RRSP or RRIF determined?

Position:

1. No
2. Question of Fact

Reasons:

1. Where a mortgage is withdrawn from an RRSP, an amount equal to the FMV of the property at that time must be reported in the annuitant's income.

2. The CCRA does not provide valuation services or give rulings on the value of properties.

		2002-013271
XXXXXXXXXX 	Karen Power, CA
(613) 957-8953
May 2, 2002

Dear XXXXXXXXXX:

Re: Mortgages Held as Investments in Self-Directed RRSP/RRIF

This is in reply to your facsimile of April 1, 2002, requesting our comments concerning the fair market value of mortgages held as investments in self-directed registered retirement savings plans ("RRSP") and registered retirement income funds ("RRIF").

Our Comments

Where a mortgage is simply removed from an RRSP or RRIF by transferring it to the annuitant under the plan, the transfer is considered to be a withdrawal of property from the plan by the annuitant. An amount equal to the fair market value of the mortgage at that time must be reported on the appropriate income slip, i.e., T4RSP or T4RIF, and included in the annuitant's income. The Act does not permit an income inclusion based on the original value of the mortgage.

The term "fair market value" is not defined in the Act and therefore takes on its ordinary meaning in its application under the Act. Black's Law Dictionary (6th edition) defines fair market value as "the amount at which property would exchange hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts". Other definitions can be found but all generally apply the same tests and conditions.

The determination of the fair market value of any property is a question of fact. In determining the fair market value of a mortgage, a valuator would consider all of the underlying facts related to the particular mortgage.

The Canada Customs and Revenue Agency does not provide valuation services or give rulings on the value of properties. The determination of whether the reported fair market value of any property is reasonable is the responsibility of the Valuations Unit of the relevant tax services office. As trustee, you may want to contact the Valuations Unit of the relevant tax services office to discuss whether your valuation procedures would be considered reasonable.

We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.

Yours truly,

Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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