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 a non-arm's length mortgage qualify for an RRSP?
Position: yes, if conditions satisfied
Reasons: 4900(1)(j) allows for them.
XXXXXXXXXX 981082
M. P. Sarazin
Attention: XXXXXXXXXX
May 1, 1998
Dear Sirs:
Re: Non-Arm's Length Mortgage as a Qualified Investment for an RRSP
This is in reply to your facsimile dated April 28, 1998, wherein you requested written confirmation that a specific registered retirement savings plan ("RRSP") could invest in a mortgage on a rental property owned by the annuitant of the RRSP.
It appears that the interpretation you seek relates to proposed transactions to be undertaken by a specific taxpayer 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. If you wish to obtain an advance income tax ruling with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments.
Paragraph 9 of Interpretation Bulletin IT-320R2 states that a mortgage secured by real property situated in Canada, or an interest therein, is a qualified investment for an RRSP where the mortgage is administered by an approved lender under the National Housing Act and is insured under the National Housing Act or by a corporation offering its services to the public as an insurer of mortgages. Where these conditions are satisfied, a mortgage on property owned by the annuitant of the RRSP will be a qualified investment for the particular RRSP.
We also note that paragraph 9 makes it very clear that the annuitant cannot benefit from the existence of the mortgage. Consequently, the mortgage interest rate and other terms must reflect normal commercial practices and it must be administered as if it was a mortgage on property owned by a stranger.
We trust that the above 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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