17 February 1999 External T.I. 9832275 - RRSP, WRITE-OFF MORTGAGE

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: Will we provide his RRSP carrier with the authority to write-off a mortgage within an RRSP?

Position: No

Reasons: There is no provision allowing for the write-off of the mortgage.

XXXXXXXXXX 983227
M. P. Sarazin
Attention: XXXXXXXXXX

February 17, 1999

Dear Sirs:

Re: Mortgage in Registered Retirement Savings Plan (“RRSP”)

This is in reply to your letter dated September 6, 1998, wherein you requested authority for your RRSP carrier to write-off a mortgage that is held within your RRSP.

Revenue Canada cannot provide an approval with respect to the write-off of investments held in an RRSP. How such properties are treated is dependent on the facts pertaining to the investment and the terms of the trust agreement that governs the RRSP. However, we can provide the following general comments on the valuation of a mortgage investment for purposes of the Income Tax Act which may be of assistance to you.

With respect to a mortgage that is in default, the first factor that must be determined is whether the investment exists at the particular time. This is a question of law. However, a mortgage will not generally cease to exist until such time as it is legally discharged. Where a mortgage no longer exists, it can be freely removed from the records of the RRSP.

A mortgage may be removed from an RRSP as a withdrawal from the RRSP or by sale to another party. In this respect, where the property is sold to a person dealing with the RRSP at arm’s length, the property is simply removed from the RRSP records and the agreed upon proceeds would be added to the RRSP. However, where the property is sold to the annuitant of the RRSP or to another person who is not dealing with the RRSP at arm’s length, it should be ensured that the proceeds of the disposal are equal to the fair market value of the mortgage at the time of the disposal or certain unintended consequences may arise.

For example, if a property is sold to the annuitant for less than its fair market value, the difference must be added to the annuitant’s income for the year in which the sale is made. On the other hand, if the property is sold to the annuitant for more than it is worth, the excess will be considered to be a contribution to the RRSP and could be subject to Part X.1 tax on overcontributions to deferred income plans.

Where a mortgage is simply withdrawn from an RRSP by the annuitant, an amount equal to the fair market value of the property at that time must be included in the annuitant’s income.

We note that, in respect of non-arm’s length transactions, you should always have proof to substantiate the fair market value of a particular property. However, how the fair market value of an asset is determined or substantiated for this purpose has never been specifically set out by Revenue Canada.

These opinions are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case. As stated in paragraph 22 of Information Circular 70-6R3 written opinions are not advanced rulings and, accordingly, are not binding on the Department.

We trust this information will be satisfactory to your needs.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate