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.
XXXXXXXXXX
Dear Colleague:
Thank you for your letter of October 1, 1998, on behalf of your constituent, XXXXXXXXXX, concerning registered retirement income funds (RRIFs).
XXXXXXXXXX is interested in the application of the tax rules to investment alternatives for his RRIF. Specifically, XXXXXXXXXX expressed the intention of having his RRIF loan some funds to a holding company of which he and his wife own preferred shares. As an alternative, XXXXXXXXXX has expressed the desire to personally borrow funds from his RRIF and lend them to the holding company. XXXXXXXXXX hopes to have his RRIF benefit from a higher rate of return on such investments than with its current investments in the stock markets.
The Income Tax Act contains provisions which define the types of investments a RRIF is allowed to hold as“qualified investments”. When a RRIF invests in a security that is not a qualified investment, the fair market value of the investment at the time of its acquisition is included in the income of the annuitant, that is, the owner of the RRIF.
In general terms, loans to corporations can meet the definition of a qualified investment of a RRIF if they take the form of a bond, debenture, note or similar obligation of a corporation the shares of which are listed on a prescribed stock exchange. Also, a mortgage secured by real property situated in Canada can be a qualified investment of a RRIF.
Under these rules, a loan to the annuitant of a RRIF is not a qualified investment for the RRIF. Thus, XXXXXXXXXX cannot personally borrow the funds from his RRIF and lend them to the holding company without having the fair market value of the loan included in his income at that time.
In summary, if XXXXXXXXXX wishes to acquire a fixed income investment in this case a debt instrument, for his RRIF, his RRIF cannot lend the money directly to him without adverse tax consequences. His RRIF may invest in debt of the holding company if it is a public corporation or if the RRIF invests in a mortgage secured by real property and the required conditions are met. Alternatively, the RRIF may invest in other qualified investments such as bank deposits, guaranteed investment certificates (GICs) or government bonds.
I am enclosing Interpretation Bulletin, IT-320R2, Registered Retirement Savings Plans - Qualified Investments which discusses qualified investments for RRSPs. The comments contained therein are also generally applicable to RRIFs.
I trust that my comments will be of assistance in replying to your constituent.
Yours sincerely,
Herb Dhaliwal, P.C., M.P.
Attachment
C.C. Minister’s Office
Political Assistant
Philipe-Antoine Sarrazin
October 27, 1998
982606
957-8984
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