21 October 1999 External T.I. 9923155 - RRSP PARTICIPATING MORTGAGES

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:

Is a participating mortgage issued by a corporation whose shares are owned by annuitants of RRSPs a qualified investment for those RRSPs?

Position:

A participating mortgage may represent an equity interest in a real property which would not be a qualified investment. This is a question of fact. It is also a question of fact whether the annuitant/shareholders and the corporation are dealing with each other at arm's length.

Reasons:

The question can not be answered except through a reply to a request for an advance income tax ruling.

XXXXXXXXXX 			992315
W. C. Harding
Attention:  XXXXXXXXXX 

October 21, 1999

Dear Sirs:

Re: Mortgage as Qualified Investment for a Registered Retirement Savings Plan (RRSP)

This is in reply to your letter of August 26, 1999, in which you requested our opinion as to whether an interest in a certain mortgage would be a qualified investment for a particular RRSP.

As you indicated in your letter, it is a question of fact whether the annuitant of each RRSP is dealing at arm's length with a corporation in situations such as the one you described. Accordingly, we cannot confirm whether an interest in a mortgage would be a qualified investment for a an RRSP except in the context of an advance income tax ruling. Furthermore we must note that a determination of whether a particular interest is a qualified investment can only be made after a review of all of the facts that will be applicable at the time of acquisition. Therefore, we could only provide an advance income tax ruling where these facts can be ascertained before hand.

We would also like to note that a participating mortgage may not be a qualified investment for an RRSP if the terms of the arrangement represent, in essence, an equity or ownership interest in the land rather than an interest in a mortgage (i.e., a secured debt) in respect of real property. Again, this fact may only be determined upon an examination of the documents pertaining to the arrangement.

Yours truly,

P. Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate