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.
XXXX (A-2052) C. Kauppinen (613) 995-0051
March 24, 1986
Dear XXXX
This is in reply to your letter dated March 3, 1986 which is further to our letter of February 18, 1986 regarding the potential application of paragraph 204.2(1)(b) in a situation in which an annuitant of a self-directed RRSP directs XXXX as trustee of the plan, to invest in a mortgage where the annuitant under the plan is the mortgagor. There is a decline in mortgage interest rates after the mortgage loan is negotiated but prior to closing. Your practice with respect to loans offered to the general public is to write the loan at the lower rate because of competitive considerations. In this case the annuitant has requested that the higher interest rate be left in place.
In our previous letter, we indicated that, in our opinion, paragraph 204.2(1)(b) could have application in this situation. You have now requested our comments with respect to the nature of the gift, the quantum thereof, and the donor pursuant to the application of paragraph 204.2(1)(b) in the above-noted situation.
In our opinion, the gift in this situation and the quantum thereof would be the difference between the amount of interest actually paid on the mortgage loan and the amount of interest which would have been paid if the mortgage had been negotiated at the lower interest rate, as described above, calculated on an annual basis. The donor would be the annuitant. It is he who is foregoing the opportunity to close the mortgage loan at a lower interest rate.
We trust the above is of assistance.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1986
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© Sa Majesté la Reine du Chef du Canada, 1986
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