2 December 1996 External T.I. 9637315 - RRSP MORTGAGE

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:

Do certain interests in arm's length mortgages qualify for RRSPs.

Position:

Question of Fact - only general comments provided

Reasons:

This is a fact based question, requires a ruling

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Attention: XXXXXXXXXX

December 2, 1996

Dear Sirs:

Re: Mortgages held in RRSPs

This is in reply to your letter of November 6, 1996, regarding the holding of units of a mortgage in an RRSP.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2, dated September 28, 1990, and the special release thereto (enclosed). Accordingly, we can not address the specific situation detailed in your letter at this time. We can however provide you with the following general comments which may be of assistance to you.

The Department's position on the holding of mortgages in an RRSP is discussed in Interpretation Bulletin IT-320R2 (enclosed). In general, a mortgage or an interest in a mortgage secured by real property situated in Canada may be held as a qualified investment of an RRSP if the mortgagor is not the annuitant of the RRSP or is a person dealing at arm's length with both the RRSP and the annuitant of the RRSP. An RRSP may also hold a mortgage secured by real property situated in Canada where the mortgagor is the annuitant of the RRSP or a person not dealing at arm's length with the annuitant, if the mortgage:

(a)is administered by an approved lender under the National Housing Act;

(b)is insured under the National Housing Act or a corporation offering its services to the public as an insurer of mortgages;

(c)has an interest rate and other terms that reflect normal commercial terms and practices; and

(d)is administered as if it were a mortgage on property owned by a stranger.

An interest in a mortgage may be represented by units registered in the name of the RRSP. Furthermore, such units may be held by a trustee on behalf of the RRSP for the purposes of administering the mortgage. It should be noted, however, that an interest in a trust, other than a trust that is a mutual fund, or small business investment trust, is not generally a qualified investment for an RRSP. Care must therefore be exercised to ensure that the RRSP continues to hold an interest in the mortgage and not an interest in a trust.

We would also like to note that funds advanced by an RRSP for the purpose of acquiring an interest in a mortgage will not generally be a qualified investment for the RRSP if the funds are held in a trust or as a debt obligation to the RRSP prior to being used to acquire the interest.

We trust this information will be satisfactory to your needs.

Yours truly,

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