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 an annuitant has to obtain an authorisation from Revenue Canada if the annuitant's RRSP wants to invest in a mortgage secured by a real property.
Position: No.
Reasons: Wording of 4900(4) and 4900(1)(j) of the Regulations.
XXXXXXXXXX 5-982545
Fouad Daaboul
October 8, 1998
Dear Sir:
Re: Mortgage held in a Locked-in registered retirement savings plan ("RRSP")
This is in reply to your letter of August 7, 1998, received by our Directorate in September 30, 1998, wherein you ask whether your Locked-in RRSP's properties may be invested in a mortgage. We also acknowledge the information provided during our telephone conversation (XXXXXXXXXX/Daaboul) of October 7,1998.
You explain that you wish to have your RRSP invest in a mortgage of which you are the mortgagor and your intention is not to withdraw any lump sum amounts from your RRSP.
It is our understanding that where an RRSP is "locked-in" under pension standards legislation, that legislation requires that the RRSP be held to provide a periodic pension income to you after you reach a certain age and, therefore, lump-sum payments are not permitted. This requirement is not imposed by the Income Tax Act.
Where a mortgage has been acquired by a self-directed RRSP and the mortgage is considered to be a qualified investment, it is the Department's view that such an acquisition has no immediate tax consequences to the RRSP's annuitant. Generally, where the annuitant of an RRSP is the mortgagor, the mortgage may 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.
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.
We enclose for your information a copy of Interpretation Bulletin IT-320R2 which deals with qualified investments in an RRSP. We draw your attention more particularly to paragraph 9 which deals with a mortgage as a qualified investment for an RRSP.
The Directorate cannot confirm whether or not a particular mortgage held by an RRSP is a qualified investment as the onus is on the taxpayer to make this determination; however, the annuitant is not required under the Act to obtain from the Department any authorisation for purposes of acquiring such a mortgage by his or her RRSP.
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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