8 July 1996 External T.I. 9621995 - RRSP MORTGAGE BONDS TRUST

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:

clarify rules on rrsp held mortgage bonds administered through a trust

Position:

		routine explanation of normal structure

Reasons:

		prior rulings and opinions	

XXXXXXXXXX 5-962199

Attention: XXXXXXXXXX

July 8, 1996

Dear Sirs:

Re: Mortgages held in Registered Retirement Savings Plans (RRSPs)

This is in reply to your letter of June 19, 1996, in which you asked the following questions:

1.Would mortgage bonds issued under a deed of trust and mortgage, which deed of trust and mortgage grants, mortgages and charges in favour of the trustee under the deed of trust and mortgage and mortgage bond holders the interest of the mortgagor in real property and improvements, be considered an interest in a mortgage for the purposes of subsection 4900(4) of the Income Tax Regulations (the Regulations)?

2.Would it make a difference if the deed of trust and mortgage was also collaterally secured by personal property of the mortgagor in addition to the grant, mortgage and charge on real property of the mortgagor?

In reply we make the following comments.

1.It is a question of fact whether a bond issued in accordance with any particular deed of trust and mortgage would be an interest in a mortgage secured by real property situated in Canada. However, where property is conveyed to a trustee to secure the bonds issued by the mortgagor, we will generally accept that the bond is an interest in the mortgage. In other words, when a trustee administers a mortgage on behalf of bond holders and the bonds are not, in fact, interests in the trust but are interests in the mortgage, the bonds will qualify under subsection 4900(4) of the Regulations.

2.In our opinion a collateral mortgage on personal property will not be a qualified investment for an RRSP even though it may secure the same debt obligation that is secured by a mortgage on real property situated in Canada. Similarly a collateral security that is part of a real property mortgage may taint the status of the real property mortgage as a qualified investment. In our opinion, the intent of subsection 4900(4) of the Regulations is to limit mortgages to those that are secured solely by real property located in Canada. Therefore, if a mortgage is secured in whole or in part by chattels or other forms of security, it would not meet the definition. However, we are also of the opinion, that a mortgage holder can have recourse in the event of a default under the terms of a mortgage and such recourse does not have to be restricted to the real property securing the mortgage.

The above comments are based on our understanding of the law as it applies in general and may or may not apply to the circumstances of a particular case. They do not form an advance income tax ruling and they are not binding on the Department.

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