4 March 2003 External T.I. 2003-0182255 - OVERDRAFT IN 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: What are the consequences when an RRSP goes into an overdraft position?

Position: Depending on the arrangements the overdraft may constitute the borrowing of money or the use of the plan property as security for a loan.

Reasons: Provisions of 146(4)(a) or 146(10) and previous opinion letters.

XXXXXXXXXX M.P. Baldwin, CA
2003-018225
March 4, 2003

Re: Overdraft in an RRSP

This is in reply to letter of January 3, 2003 in which you request information concerning whether a registered retirement savings plan ("RRSP") is permitted to be in a deficit position.

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 and other publications are available at your local Tax Services Offices 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.

We are not entirely clear of the sequence of transactions that placed your RRSP into a deficit or "overdraft" position, but we assume that an investment was purchased on behalf of an RRSP trust when the trust did not have sufficient funds for the purchase. We are of the opinion that, depending on the arrangements, the overdraft may constitute the borrowing of money or the use of the plan property as security for a loan such that subsection 146(4) or subsection 146(10) of the Income Tax Act (the "Act") will apply.

Adverse income tax consequences may occur if an RRSP trust borrows money, or uses or permits its property to be used as security for a loan. Subject to certain exceptions, if an RRSP has borrowed money in the year or in a previous year that it has not repaid before the beginning of the year, paragraph 146(4)(a) of the Act requires that the trust pay income tax on its taxable income for that year. If an RRSP uses or permits its property to be used as security for a loan, subsection 146(10) of the Act requires the fair market value of the property to be included in computing the annuitant's income for the year. In the year the property ceases to be used as security, a deduction from the annuitant's income is permitted under subsection 146(7) of the Act.

We cannot comment on your question on whether the trustee of the RRSP plan trust has the authority to sell assets of the RRSP plan trust, as this would be a question of fact based on the terms of your contract with the trustee and the terms of the RRSP plan trust.

We trust the above comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate