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 second mortgage a qualified investment for a trust governed by an RRSP?
Position: Yes
Reasons:
As long as the mortgage satisfies the requirements of paragraph 4900(1)(j) of the Regulations.
XXXXXXXXXX 2002-017602
G. Allen
December 13, 2002
Dear XXXXXXXXXX:
Re: Mortgages and Self-Directed Registered Retirement Savings Plans (RRSPs)
This letter is in reply to your letter dated November 21, 2002 and further to our telephone conversation of December 11, 2002 concerning second mortgages and RRSPs. As discussed in our telephone conversation, your understanding of mortgages is that a 2nd rank mortgage is the same as a second mortgage.
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 advanced 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.
Paragraph 11 of Interpretation Bulletin IT-320R3, entitled "Qualified Investments - Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds", (available at your local tax services office or on the internet at www.ccra.gc.ca/formspubs/menu-e.html), states that a mortgage, or an interest therein, in respect of real property situated in Canada is a qualified investment for a trust governed by an RRSP. Paragraph 11 further states that there is no requirement that the mortgage be a first mortgage or a residential mortgage. Provided the second mortgage satisfies the requirements of paragraph 4900(1)(j) of the Income Tax Regulations, as described in paragraph 11 of IT-320R3, a second mortgage will be a qualified investment for an RRSP.
Note that for income tax purposes, the foregoing comments continue to be applicable if, instead of taking a second mortgage on real property, the outstanding principal on a first mortgage is simply increased.
We trust our comments will be of assistance.
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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