10 March 2003 External T.I. 2002-0172085 - QUALIFIED INVESTMENT-RRSP-MORTGAGE

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: Is a mortgage of real property owned by the annuitant's arm's length employer a qualified investment for an RRSP?

Position: Yes

Reasons: Interpretation of legislation.

2002-017208
XXXXXXXXXX Renée Shields
(613) 948-5273
March 10, 2003

Dear XXXXXXXXXX:

Re: Qualified Investment for a Registered Retirement Savings Plan ("RRSP")

This is in response to your letter of October 29, 2002 inquiring whether a mortgage of real property owned by an annuitant's arm's length employer is a qualified investment for an RRSP.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.

The CCRA's general views regarding qualified investments for RRSP trusts are contained in Interpretation Bulletin IT-320R3, "Qualified Investments - - Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds." In particular, paragraphs 11 and 12 of IT-320R3 deal with investments in mortgages. If an RRSP annuitant is at arm's length with his or her employer, our view is that the investment by an RRSP trust in a mortgage of property owned by the annuitant's employer would be a qualified investment pursuant to subparagraph 4900(1)(j)(i) of the Income Tax Regulations (the "Regulations").

You have queried the purpose of the inclusion of a reference to "employer" in the wording of subparagraph 4900(1)(j)(ii) of the Regulations. Although the Department of Finance is responsible for tax policy and the drafting of the Income Tax Act and Regulations, we can make the following observation. In accordance with the introductory wording in subsection 4900(1) of the Regulations, the list of prescribed qualified investments is applicable for purposes of RRSPs, registered education savings plans ("RESPs"), registered retirement income funds ("RRIFs") and deferred profit sharing plans ("DPSPs"). We note that subsection 4900(4) of the Regulations, prior to being repealed, only applied to RRSPs and RRIFs. A reference to "employer" in subparagraph 4900(1)(j)(ii) of the Regulations is necessary to make the provision applicable to DPSPs. Accordingly, if the mortgagor were the employer under a DPSP, the conditions in subparagraph 4900(1)(j)(ii) would have to be satisfied. This explanation is also consistent with the absence of a discussion of "employer" in paragraphs 11 and 12 of IT-320R3 insofar as IT-320R3 applies only to qualified investments for trusts governed by RRSPs, RRIFs and RESPs.

We trust that these comments will be of assistance.

Yours truly,

Mickey Sarazin, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch