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 an rpp invest in a mortgage issued by a plan member?
Position:
yes
Reasons:
Where the conditions in 8514(2)(e) are satisfied, an rpp may invest in a mortgage issued by a plan member.
972411
XXXXXXXXXX M.P. Sarazin
October 2, 1997
Dear Sir:
Re: Pension Plan Investment in a Mortgage
This is in reply to your letter to our Registered Plans Division dated August 5, 1997, wherein you asked whether your share of a money purchase provision of a registered pension plan could be invested in a mortgage on an investment property that you would like to acquire as part of a family business. You would ensure that all of the conditions required for a non-arm's length mortgage to qualify as a qualified investment for a self-directed registered retirement savings plans are satisfied.
It appears that the interpretation you seek relates to a proposed transaction and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. Nevertheless, we can provide you with the following comments.
Subsection 8514(1) of the Income Tax Regulations (the "Regulations") specifies the investments that a pension plan is prohibited from acquiring. A prohibited investment includes a debt of a plan member or a debt of a person or partnership that does not deal at arm's length with the plan member. However, paragraph 8514(2)(e) provides an exception for mortgages that bear an arm's length rate of interest and, in the case where the aggregate value of the mortgage and any other mortgage on the particular property exceed 75% of the fair market value at that time of the property, the mortgage is insured under the National Housing Act or by a corporation that offers its services to the public in Canada as an insurer of mortgages. In this regard, we would also refer you to subparagraph 12(b) of Information Circular 72-13R8 wherein it states:
"The plan may not provide loan privileges. Nevertheless, it is not intended that trustees should be prohibited from investing in mortgages under which a plan member is the mortgagor, provided that the mortgage bears a reasonable rate of interest and such investments are made within the limitations set for such investments in the Pension Benefits Standards Act, 1985, or a provincial pension benefits act or regulations thereunder."
Consequently, unless the holding of a mortgage is prohibited under the particular pension legislation governing your plan, a pension plan may invest in a mortgage issued to a plan member where the conditions in paragraph 8514(2)(e) of the Regulations are satisfied.
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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