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.
Principal Issues: Will a debt obligation that is secured by a mortgage in respect of a lease or a sublease on property located on First Nations Land be a qualified investment for purposes of paragraph 4900(1)(j) of the Income Tax Regulations?
Position: Question of fact. General comments provided.
Reasons: We would require all of the relevant facts in a particular fact situation, in the context of an advance tax ruling, to make this determination. Proposed amendments to 4900(1)(j) may impact this issue, as well as provisions of the Indian Act.
XXXXXXXXXX 2004-010642
G. Allen
April 6, 2005
Dear XXXXXXXXXX:
Re: RRSP - Qualified Investments
This letter is in reply to your facsimile of November 10, 2004 and further to your e-mails dated February 2 and 11, 2005, wherein you enquire whether a debt obligation that is secured by a mortgage in respect of a sublease on property located on First Nations Land, is a qualified investment for registered retirement savings plans (RRSPs).
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 Revenue Agency ("CRA"). All publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/tax/technical/incometax/menu-e.html.
Paragraph 4900(1)(j) of the Income Tax Regulations (the "Regulations") and paragraph 11 of IT-320R3 state, inter alia, that a mortgage that is in respect of real property situated in Canada is a qualified investment for a trust governed by an RRSP. It is a question of fact whether a mortgage in respect of a leasehold interest in First Nations Land would satisfy the requirement that a debt obligation must be secured by a mortgage in respect of real property. Such a determination would require a review of all of the relevant facts in a particular fact situation and could only be made in the context of an advance income tax ruling. You may refer to Information Circular 70-6R5 dated May 17, 2002 for more information concerning advance income tax rulings.
In the course of our review of this issue, we note that proposed amendments to paragraph 4900(1)(j) of the Regulations may be relevant to your question. In particular, proposed amendments to paragraph 4900(1)(j) of the Regulations will add a fair market value test to the conditions that must be satisfied under paragraph 4900(1)(j). Specifically, it is proposed that the amount of the debt obligation will not be able to exceed the fair market value of the property, except as a result of a decline in the fair market value of the real property after the issuance of the debt obligation. This test is intended to apply on an on-going basis. We note in your e-mail sent February 11, 2005 that there may be impairment concerning the marketability of an interest in a lease or a sublease on property located on First Nations Land. As a result, in our view, this potentially may cause problems in satisfying the proposed fair market value test for purposes of paragraph 4900(1)(j) of the Regulations. Further, we note that provisions of the Indian Act, for instance, subsections 89(1) and 89(1.1) may also be relevant to your question.
We trust the above comments will be of assistance.
Yours truly,
Roberta Albert, CA
Manager
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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