5 June 1995 External T.I. 9508145 - RRSP & MORTGAGE FORECLOSURE

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:

Can a RRSP acquire real property as a result of foreclosure on a mortgage?

Position TAKEN:

Yes but must dispose of real property ion a reasonable time.

Reasons FOR POSITION TAKEN:

Routine see 940596, 920202

		950814
XXXXXXXXXX		M.P. Sarazin

Attention: XXXXXXXXXX

June 5, 1995

Dear Sirs:

Re: Collection on Mortgage Covenants

This is in reply to your letter dated March 21, 1995 concerning a Registered Retirement Savings Plan ("RRSP") trust that acquires real property as a result of a default by the mortgagor.

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. As a consequence thereof, we may only offer the following general comments.

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 (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 of the Act 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) of the Act.

However, the Department is prepared not to apply the provisions of either subsection 146(10) or 207.1 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.

With respect to any particular situation, when property is put up for sale at a price above market value it may indicate that there is no real intent of disposing of the property within a reasonable period of time and as such the condition in (e) above would not be met.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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