23 March 1994 External T.I. 9405965 - MORTGAGE 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 Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

Principal Issues:

Whether RRSP trust can accept real property in satisfaction of mortgage where mortgagor is making bankruptcy proposal.

Position TAKEN:

Yes but must dispose of non-qualified investment within reasonable time.

Reasons FOR POSITION TAKEN:

Routine - see for example 920202.

XXXXXXXXXX 940596

Attention: XXXXXXXXXX

March 23, 1994

Dear Sirs:

Re: Mortgage in a Registered Retirement Savings Plan (RRSP)

This is in reply to your letter of March 3, 1994, in which you ask us about a second mortgage held in your RRSP and the consequences should the title to the real property be transferred to the RRSP in satisfaction of the mortgage. The mortgagor is presently in the course of making a bankruptcy proposal.

As the situation outlined in your letter involves actual taxpayers and a proposed transaction, we are unable to respond to your request unless it is submitted as an advance income tax ruling request in accordance with the instructions in Information Circular 70-6R2. We can offer the following general comments, however, but would point out that they are not binding on the Department.

Real property is not a qualified investment for an RRSP trust. Where an RRSP trust acquires real property,

(a)subsection 146(10) of the Income Tax Act (unless as otherwise stated all references to this statute are to the Income Tax Act S.C. 1970-71-72,c.63 as amended consolidated to June 10, 1993 - the "Act") provides that the fair market value (FMV) of that property is to be included in the annuitant's income, and

(b)for each month that it holds the property, subsection 207.1(1) provides that the trust shall pay a tax of 1% of the FMV of the property, other than property the FMV of which was included in the annuitant's income under subsection 146(10).

However, the Department is prepared not to apply the provisions of either subsection 146(10) or 207.1(1) of the Act provided that

(c)the original mortgage investment of the RRSP trust was a qualified investment,

(d)the acquisition through foreclosure or other procedure was necessary to protect the mortgage investment of the trust and was a result of actions or default of actions on the part of the mortgagor, and

(e)the RRSP trustee holds the real property in the trust for the sole purpose of disposing of it and in fact does dispose of it within a reasonable period of time. A reasonable period of time is usually a year from the time of acquisition but may extend beyond a year provided any delays can be justified having regard to the facts of the particular case.

We can confirm that property held in an RRSP may be purchased by the annuitant thereof so long as the purchase occurs at FMV. Where a sale occurs at less than FMV, subsection 146(9) of the Act applies to include in the annuitant's income an amount equal to the difference between the sale price and FMV.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate