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: Whether a particular transaction, involving participation in the Ontario microFIT program, would result in a self-directed RRIF trust holding a "qualified investment" under the Act.
Position: No.
Reasons: The proposed transaction would not result in a qualified investment, as defined in the Act, being held by the RRIF trust.
XXXXXXXXXX
2013-050635
K. Podor
March 4, 2014
Dear XXXXXXXXXX:
Re: Self-directed registered retirement income fund (RRIF) trust
This is in response to your correspondence dated September 17, 2013, concerning whether a particular transaction to finance your participation in the Ontario microFIT program using funds in your self-directed registered retirement income fund ("RRIF") trust would result in your RRIF trust holding a qualified investment for purposes of the Income Tax Act (the "Act").
This technical interpretation provides comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, "Advance Income Tax Rulings".
Your correspondence indicates that you are the annuitant of a self-directed RRIF trust. You intend to carry out the following transactions:
- enter into a microFit program contract with the Ontario Power Authority as the eligible participant
- borrow money from your RRIF trust to finance the purchase and installation of a renewable generating facility (solar), and
- request payments received under the microFIT contract to be paid directly to the RRIF carrier as income of the RRIF trust.
You have asked whether these transactions can be undertaken without tax consequences. You contend that your proposed transaction is similar to another type of qualified investment that may be held by a RRIF trust. Specifically, you refer to an annuitant that borrows funds from their self-directed RRIF trust to finance the purchase of a home and has the RRIF trust hold the mortgage.
Our Comments
Trusts governed by a RRIF are separate and distinct from their annuitants. The property of a RRIF trust is administered by a trustee and the RRIF annuitant is the beneficiary of the trust.
A RRIF trust is required to limit its investments to qualified investments. The Act lists qualified investments that may be held by a RRIF trust. In particular, the Act and Income Tax Regulations list the type of debt obligations that are qualified investments for a RRIF trust. For additional information on debt obligations that are qualified investments, you may refer to paragraph 10 of Income tax interpretation bulletin (IT)-320R3, "Qualified Investments trusts governed by registered retirement savings plans, registered education savings plans and registered retirement income funds". This document is available on our website at http://www.cra-arc.gc.ca/E/pub/tp/it320r3/it320r3-e.html.
In your correspondence, you noted that a RRIF trust may hold a mortgage. A debt obligation that is secured by a mortgage may be a qualified investment for a RRIF trust, under certain conditions. Specifically, where a RRIF annuitant is a debtor (or a person not dealing at arm's length with the debtor), a debt obligation that is secured by a mortgage, on real or immovable property situated in Canada, is a qualified investment when:
- the debt obligation is administered by an approved lender under the National Housing Act, and
- the debt obligation is insured either under the National Housing Act or by an approved private insurer.
Based on the information you provided, the transaction described would not result in your self-directed RRIF trust holding a qualified investment. As such, the transaction would result in your RRIF trust acquiring a non-qualified investment.
A RRIF trust that acquires a prohibited investment is subject to tax imposed on the annuitant of the RRIF trust under subsection 207.04(1) of the Act. The tax is equal to 50% of the fair market value of the property at the time it was acquired by the trust. Similar rules apply to non-qualified investments held by a trust governed by a registered retirement savings plan and a tax-free savings account.
We trust these comments are helpful.
Lita Krantz, CPA, CA
for Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2014
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2014
Email this Content