7 November 1994 External T.I. 9427005 - QUALIFIED INVESTMENTS FOR AN RRSP AND ARM'S LENGTH

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.

Principal Issues:

Qualified Investments for an RRSP and arm's length mortgages.

Position TAKEN:

Question of fact. Depending on terms of mortgage, the mortgage may qualify pursuant to 4900(1)(j) or 4900(4).

Reasons FOR POSITION TAKEN:

Routine

XXXXXXXXXX		5-942700

Attention: XXXXXXXXXX

November 7, 1994

Dear Sirs:

Re: Qualified Investments in a Registered Retirement Savings Plan (RRSP)

This is in reply to your facsimile of September 30, 1994 requesting our opinion on whether or not a particular mortgage would be considered an arm's length transaction and whether or not it would be a qualified investment for an RRSP. The situation described in your letter is an actual fact situation and 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. Where a completed transaction is involved, the enquiry should be addressed to the relevant District Taxation Office. However, we offer the following general comments.

Qualified investments of a trust governed by an RRSP are listed in subsection 146(1) and section 204 of the Income Tax Act (the "Act") and section 4900 of the Income Tax Regulations (the "Regulations"). Depending on the relationship between the mortgagor and the mortgagee, a mortgage may qualify as a qualified investment under paragraph 4900(1)(j) or subsection 4900(4) of 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 Act and as noted in this subsection it is a question of fact whether or not persons are dealing at arm's length with each other.

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. We trust, however, that they are of assistance.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch