8 February 1999 External T.I. 9827045 - LOANS, MORTGAGES & RRSP

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:

1. What is the amount of a loan that a corporation may provide to its shareholders and when do the shareholders have to repay the loan?

2. Can a Canadian Controlled Private Corporation issue a RRSP slip as a result of the issuance of shares to a RRSP?

3. Can a corporation finance an individual’s RRSP contributions?

4. What are the conditions required under the Act that a corporation has to meet in order to be considered a Venture Capital Corporation for purposes of RRSP?

5. What are the requirements under the Act concerning RRSP investments in mortgages?

Position:

1. Question of fact.

2. No.

3. Question of fact.

4. Reg 6700

5. Reg 4900(1)(j) & 4900(4).

Reasons:

1-3 See IT-119R4
5 See IT- 320R2

XXXXXXXXXX 5-982704
Fouad Daaboul
Attention: XXXXXXXXXX

February 8, 1999

Dear Sirs:

Re: Loans, Mortgages and RRSP

This is in reply to your letter of October 14, 1998, wherein you requested our views in respect of several questions relating to the application of the Income Tax Act (the "Act").

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.

Question 1

Is there a limit to the amount that a corporation could lend to its shareholders and is there a time limit with respect to the repayment of any shareholder loans?

Our comments

You will find the Department’s general views relating to corporate debts to shareholders in the enclosed Interpretation Bulletin IT-119R4. Subject to certain exceptions described therein, shareholders are generally taxable on amounts received from a corporation.

Question 2

Can a Canadian controlled private corporation (“CCPC”) issue a RRSP receipt to one of its shareholders when the shareholder’s RRSP has acquired shares of the corporation?

Our comments

An RRSP issuer will issue RRSP receipts for contributions that it has received from an annuitant or the annuitant’s spouse in the case of a spousal RRSP and for allowed transfers of property from other deferred income plans. The enclosed Information Circular 72-22R9 provides information regarding authorized RRSP issuers (paragraph 3) and the issuance of receipts (paragraphs 34 to 40). Where a trust governed by an RRSP acquires shares of a CCPC that are qualified investments with the contributions it has received from the annuitant, the RRSP trust will issue the receipt for the contributions it has received from the annuitant and the CCPC does not issue any receipts in respect of the sale of its shares.

Question 3

Can an individual borrow money from a CCPC to finance his or her RRSP contributions where it is intended that the RRSP will acquire shares of the CCPC with such contributions?

Our comments

There are no provisions that would prohibit the CCPC from lending money to an individual. The enclosed Interpretation Bulletin IT-421R2 provides the Department’s views with respect to benefits that may result from loans to individuals, corporations and shareholders.

Question 4

What are the conditions that a corporation has to satisfy in order to qualify as a Venture Capital Corporation under the Act?

Our comments

A corporation will qualify as a prescribed venture capital corporation if it satisfies one of the conditions described in section 6700 of the Income Tax Regulations (the “Regulations”). A corporation registered under the provisions of An Act Respecting Corporations for the Development of Quebec Business Firms (Statutes of Quebec 1976, c.33), a corporation registered under the provisions of An Act respecting Quebec business investment companies (Statutes of Quebec 1985, c. 9), a corporation established by An Act to Establish the Fonds de solidarité des travailleurs du Québec (F.T.Q.) (Revised Statutes of Quebec, F-3.2.1) or a corporation that is at that time a registered labour-sponsored venture capital corporation will qualify under section 6700 of the Regulations.

Question 5

Can a RRSP invest in mortgages?

Our comments

The enclosed Interpretation Bulletin IT-320R2 provides the Department’s general views regarding the kinds of property that constitute qualified and non-qualified investments for a trust governed by an RRSP and the income tax consequences of an RRSP acquiring and holding non-qualified investments. Paragraph 9 of IT-320R2 discusses the conditions that have to be met in order for a mortgage to be a qualified investment for an RRSP.

Additional enquiries may be directed to your local Tax Services Office located at:

3131 St-Martin Blvd. West

Laval QC H7T 2A7
General Enquiries: (514) 956-9101

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

(Enclosures)