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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
February 7, 1994
Would a mortgage on a business property be a qualified investment for an RRSP, where the mortgagor and the annuitant of the RRSP are non-arm's-length?
Yes, provided the mortgage satisfies certain conditions, notably that it must be insured.
Reasons FOR POSITION TAKEN:
See requirements in paragraph 4900(1)(j) and subsection 4900(4) of the Regulations and IT-320R2 paragraph 9.
IT-320R2 paragraph 9.
February 8, 1994
This is in reply to your letter of January 10, 1994, regarding the proposed investment in a mortgage by your and your spouse's Registered Retirement Savings Plans ("RRSPs").
As noted in Information Circular 70-6R2, we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling request. While we are unable to address your particular situation, we can offer you the following general comments.
Depending upon the relationship between the mortgagor and the mortgage, a mortgage may qualify as a qualified investment under paragraph 4900(1)(j) or subsection 4900(4) of the Income Tax Regulations (the "Regulations").
Pursuant to subsection 4900(4) of the Regulations, a mortgage secured by real property situated in Canada or an interest therein, is a qualified investment for an RRSP unless the mortgagor is the annuitant of the RRSP, or is a person with whom the annuitant does not deal at arm's length.
Arm's length is defined in subsection 251(1) of the Income Tax Act (the "Act"). Paragraph (a) therein deems related persons to not deal at arm's length. Subparagraph 251(1)(b) defines related persons to include a corporation and a person who controls the corporation, if it is controlled by one person. (It should be noted that for the purposes of the Act, "person" includes a corporation pursuant to subsection 248(1).)
If the mortgagor is the annuitant under the RRSP or is a person with whom the annuitant does not deal at arm's length, then the mortgage does not qualify as a qualified investment under subsection 4900(4) of the Regulations. Nevertheless, the mortgage may qualify under paragraph 4900(1)(j) of the Regulations provided it satisfies all of the following conditions:
(a)the mortgage is in respect of real property situated in Canada;
(b)the mortgage is administered by an approved lender under the National Housing Act;
(c)the mortgage is insured under the National Housing Act or by a corporation offering its services to the public in Canada as an insurer of mortgages;
(d)the rate of interest on the mortgage and other terms reflect normal commercial practice; and
(e)the mortgage is administered as if it were a mortgage on a property owned by a stranger.
Our comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.
Financial Institutions Division
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