2 December 1997 External T.I. 9726565 - PROMISSORY NOTE SECURED BY 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:

Would a promissory note secured by a mortgage on real property be a qualified investment for an RRSP?

Position:

Question of fact.

Reasons:

The terms of the particular note would have to be reviewed in order to determine whether the provisions of 4900(1)(j) or 4900(4) would be satisfied.

972656
XXXXXXXXXX M.P. Sarazin

Attention: XXXXXXXXXX

December 2, 1997

Dear Sirs:

Re: Mortgage in a Registered Retirement
Savings Plan ("RRSP")

This is in reply to your letter dated October 3, 1997, wherein you requested our views as to whether a promissory note, secured by a mortgage on real property, would be a qualified investment within the meaning assigned by subsection 146(1) of the Income Tax Act (the "Act"). This type of investment would provide an RRSP trust with the ability to sue on the promissory note where the mortgage has to be abandoned because there is no equity remaining after the first mortgage on the property is foreclosed.

The kinds of property that constitute qualified investments for an RRSP are described in subsection 146(1) of the Act and section 4900 of the Income Tax Regulations (the "Regulations"). The determination of whether a note secured by a mortgage would be a qualified investment under paragraph 4900(1)(j) or subsection 4900(4) of the Regulations is a qualified investment is a question of fact. Consequently, we can only provide you with the following general comments.

Promissory notes issued by the following entities would qualify as qualified investments:

(a) a corporation the shares of which are listed on a prescribed stock exchange in Canada;

(b) the Government of Canada (including promissory notes guaranteed by the Government of Canada);

(c) the government of a province or an agent thereof;

(d) a municipality in Canada or a municipal or public body performing a function of government in Canada;

(e) a corporation, commission or association not less than 90% of the shares or capital of which is owned by Her Majesty in right of a province or by a Canadian municipality, or of a subsidiary wholly-owned corporation that is a subsidiary to such corporation, commission or association;

(f) an educational institution or a hospital if repayment of the principal amount thereof and payment of the interest thereon is to be made, or is guaranteed, assured or otherwise specifically provided for or secured by the government of a province;

(g) a public corporation other than a mortgage investment corporation;

(h) a credit union that meets certain conditions described in paragraph 4900(1)(g) of the Regulations;

(i) a cooperative corporation that meets certain conditions described in paragraph 4900(1)(h) of the Regulations;

(j) a Canadian corporation that meets certain conditions described in paragraph 4900(1)(i) of the Regulations;

(k) certain Development Banks listed in paragraph 4900(1)(l) of the Regulations;

(l) a government of a country other than Canada that had, at the time of purchase, an investment grade rating with a bond rating agency that in the ordinary course of its business rates the debt obligations issued by that government; or

(m) a corporation the shares of which are listed on a stock exchange referred to section 3201 of the Regulations.

The Department's general views with respect to mortgages and the conditions that have to be satisfied in order for the interest in the mortgage to be a qualified investment are found in paragraph 9 of Interpretation Bulletin IT-320R2.

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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