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.
XXXXXXXXXX 960555
Attention: XXXXXXXXXX
February 28, 1996
Dear Sirs:
Re: Qualified Investments for RRSPs
This is in reply to your letter of February 1, 1996, wherein you requested our comments as to whether a mortgage in real property would be a qualified investment for a trust governed by an RRSP in a situation where the mortgagor is a person with whom the annuitant of the RRSP does not deal at arm's length and a chattel mortgage is taken over chattels as security collateral to this mortgage.
In a situation where the annuitant under the RRSP is a person with whom the annuitant does not deal at arm's length, the mortgage may qualify under paragraph 4900(1)(j) of the Income Tax Regulations (the "Regulations) provided it satisfies 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 practice; and
(e) the mortgage is administered as if it were a mortgage on a property owned by a stranger.
The provision of a chattel mortgage as security collateral to the mortgage would indicate that a portion of the investment is in respect of a loan secured by personal property which is not a qualified investment for RRSPs. Accordingly, the fair market value of the chattel mortgage would be included in the annuitant's income under subsection 146(10) of the Income Tax Act for the year in which the mortgage is acquired and a deduction will be available to the annuitant under subsection 146(6) of the Act in the year the mortgage is disposed of by the RRSP trust. Further, subsection 146(10.1) of the Act will apply to the trust and taxes will be exigible with respect to any taxable income earned by the trust in respect of the non qualified investment.
We trust our 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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