28 November 1997 External T.I. 9728425 - RRSP DISCHARGE 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:

Default of a mortgage in an RRSP.

Position:

Mortgage in a RRSP is to be dealt with using normal commercial procedures.

Reasons:

A Morgage in an RRSP whether issued to the annuitant or to a person at arm's length to the annuitant should reflect normal commercial terms and practises.

9728425

XXXXXXXXXX Franklyn S. Gillman, LL.L., C.A.

November 28, 1997

Dear Sirs:

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

Your letter addressed to the Registered Plans Division, in Head Office, dated October 6, 1997 wherein you requested administrative relief was forwarded to us for reply.

This Directorate does not provide administrative relief, however we are providing you with the following general comments so that you will have a proper understanding of the income tax laws as they relate to your situation and be in a position to make the necessary decisions. Please note that our comments shall be limited to situations where the mortgage is a qualified investment by the RRSP trust and the mortgagor is a person with whom the annuitant of the RRSP trust deals at arm’s length.

The Department's position on the holding of mortgages in an RRSP is discussed in Interpretation Bulletin IT-320R2, we have enclosed a copy for your perusal.

When a self directed RRSP holds a mortgage secured by real property, we expect that the mortgage will be administered in accordance with the usual business practices that the trustee would apply in similar arm's length transactions when conducting its own affairs.

Section 54 of the Income Tax Act (the "Act") defines disposition to include the cancellation of a mortgage. If a mortgage is discharged and the mortgagor and RRSP annuitant are found to be dealing with each other at arm's length at the time, no action by the RRSP trustee will be required simply as a consequence of the discharge of the mortgage as long as the RRSP trust receives proceeds equal to the fair market value of the mortgage. However, if a mortgage is discharged and no proceeds are received or the proceeds are less than the fair market value of the mortgage, subsection 146(9) of the Act will require the annuitant of the RRSP to include an amount equal to the difference in income and subsection 214(2) of the Regulations will require the trustee of the RRSP to report this amount on an information return.

These opinions are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case. As stated in paragraph 21 of Information Circular 70-6R2 written opinions are not advance rulings and, accordingly, are not binding on the Department.

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

encl.