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:
What is considered to be normal commercial practice concerning mortgage terms/interest rates for purposes of a mortgage being a qualified investment for an RRSP?
Position: Question of Fact.
Reasons:
We do not establish guidelines concerning what is considered normal commercial practice regarding morgage terms/interest rates. This is established by approved lenders of mortgages.
XXXXXXXXXX 2002-016351
G. Allen
October 8, 2002
Dear XXXXXXXXXX:
Re: Self-Directed RRSPs and Mortgages
This letter is further to your e-mail and telephone conversation (XXXXXXXXXX/Allen) of September 18, 2002 concerning mortgage interest rates/terms and "normal commercial practice".
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Copies of information circulars are available at your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.
The Canada Customs and Revenue Agency's ("CCRA) general views regarding qualified investments held by a trust governed by a Registered Retirement Savings Plan ("RRSP") are found in Interpretation Bulletin IT-320R3 entitled "Qualified Investments - Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds". Paragraph 11 and 12 of IT-320R3 outline the conditions under which a mortgage may be a qualified investment for an RRSP.
Paragraph 11 of IT-320R3 states that where an RRSP holds a mortgage on real property owned by the annuitant, or by a person not dealing at arm's length with the annuitant, the registration of the RRSP may be jeopardized and /or certain benefit and penalty provisions of the Income Tax Act may apply where
? the amount of the mortgage interest rate/terms do not reflect normal commercial practice; and
? the mortgage is not administered by the approved lender as if it were a mortgage on property owned by a stranger.
The CCRA does not establish criteria or guidelines concerning what is considered normal commercial practice regarding mortgage terms and interest rates. In order to determine what is considered normal commercial practice in the area of mortgage terms and interest rates, you would have to consider the mortgage terms and interest rates available from approved lenders of mortgages.
We trust the above comments will be of assistance.
Roberta Albert, CA
Manager
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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