30 January 1995 External T.I. 9431785 - RRSP- QUALIFIED INVESTMENTS

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:

Whether a mortgage is a qualified investment for RRSP purposes where a mortgagor is the annuitant or does not deal at arm's length with the annuitant.

Position TAKEN:

Yes provided the mortgage satisfies certain conditions, notably that it must be insured under the National Housing Act or by a corporation offering its services to the public in Canada as an insurer of mortgages.

Reasons FOR POSITION TAKEN:

See requirements in 4900(1)(j)

		5-943178
XXXXXXXXXX	M. Shea-DesRosiers

January 30, 1995

Dear XXXXXXXXXX:

Re: Registered Retirement Savings Plan ("RRSP") Qualified Investments

This is in reply to your undated letter received on December 6, 1994 concerning a proposed mortgage using the money invested in your self-directed RRSP.

Depending on the relationship between the mortgagor and the mortgagee, a mortgage will be a qualified investment for an RRSP under subsection 4900(4) or paragraph 4900(1)(j) 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.

If the requirements under paragraph 4900(4) of the Regulations are not met, a mortgage may still be a qualified investment for an RRSP provided the following requirements under paragraph 4900 (1)(j) of the Regulations are satisfied:

(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.

Furthermore, the amount of the mortgage interest rate and the other terms of the mortgage must reflect commercial practice and be administered as if it were a mortgage on property owned by a stranger.

Therefore where an RRSP holds a mortgage on real property owned by the annuitant under the plan it will be accepted as a qualified investment only if it meets the requirements of paragraph 4900(1)(j) of the Regulations. The terms of said paragraph are clear and must be respected. Consequently the Department cannot authorize that such a mortgage be insured otherwise than under the National Housing Act or by a corporation offering its services to the public in Canada as an insurer of mortgages.

It is to be noted that changes to existing legislation is the responsibility of the Department of Finance. You might want to bring your concern to their attention.

We enclose for your information a copy of Interpretation Bulletin IT-320R2 which deals with qualified investments in an RRSP. We draw your attention more particularly to number 9 which deals with a mortgage as a qualified investment for an RRSP.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Legislation and Policy Branch