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: Whether a mortgage secured by a real property situated in Canada is a qualified investment.
Position: Question of fact and law.
Reasons: Wording of 4900(4) and 4900(1)(j) of the Regulations.
XXXXXXXXXX 5-980935
Fouad Daaboul
June 18, 1998
Dear Sir:
Re: Holding a mortgage in a self-directed RRSP
This is in reply to your letter of April 9, 1998, wherein you requested an advance income tax ruling concerning your self-directed RRSP.
Written confirmation of the tax implications inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3 dated December 30, 1996. Questions concerning actual fact situations should otherwise be directed to your tax services office. Although we cannot provide a specific answer or a ruling with regard to your query, we offer the following general comments which are not binding on the Department.
Depending on the relationship between the mortgagor and the mortgagee, a mortgage will be a qualified investment for a registered retirement savings plan (the "RRSP") under subsection 4900(4) or paragraph 4900(1)(j) of the Income Tax Regulations (the "Regulations").
Pursuant to subsection 4900(4) of the Regulations, a mortgage secured by real property situated in Canada, or an interest therein, is a qualified investment for an RRSP unless the mortgagor is the annuitant of the RRSP, or is a person with whom the annuitant does not deal at arm's length pursuant to subsection 251(1) of the Income Tax Act (the "Act"). For purposes of this provision, two married individuals that are related pursuant to paragraph 251(2)(a) of the Act shall be deemed not to deal with each other at arm's length.
If the requirements under paragraph 4900(4) of the Regulations are not met as is in your situation, a mortgage may still be a qualified investment for an RRSP provided the following requirements under paragraph 4900 (1)(j) of the Regulations are satisfied:
a) the mortgage is in respect of real property situated in Canada;
b) the mortgage is administered by an approved lender under the National Housing Act;
c) the mortgage is insured under the National Housing Act or by a corporation offering its services to the public in Canada as an insurer of mortgages.
Therefore where an RRSP holds a mortgage on real property owned by the annuitant under the plan (or the annuitant's spouse) it will be accepted as a qualified investment only if it meets the requirements of paragraph 4900(1)(j) of the Regulations. The terms of said paragraph are clear and must be respected. Consequently the Department cannot authorise that such a mortgage be administered otherwise than by an approved lender under the National Housing Act or be insured otherwise than under the National Housing Act or by a corporation offering its services to the public in Canada as an insurer of mortgages.
Furthermore, the amount of the mortgage interest rate and the other terms of the mortgage must reflect commercial practice and be administered as if it were a mortgage on property owned by a stranger. In our view, it is a question of fact whether or not such requirements are met and thus we can make no comment in regard to the terms and conditions of the proposed mortgage.
We trust our comments will be of assistance to you.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
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