23 December 1999 External T.I. 9926175 - MORTGAGE AS A QUALIFIED INVESTMENT

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: Can a non-arm's length mortgage qualify for an RRSP

Position: Yes, if certain conditions are met

Reasons: 4900(1)(j)

XXXXXXXXXX 992617
M. P. Baldwin
Attention XXXXXXXXXX

December 23, 1999

Dear Sirs:

Re: Non-Arm's Length Mortgage as a Qualified Investment for an RRSP

This is in reply to your letter of September 16, 1999 and further to our letter of May 1, 1998 (#981082), in which you request clarification of the qualified investment rules for a Registered Retirement Savings Plan ("RRSP") and how these rules pertain to mortgages. As you may be aware, on November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency.

The interpretation you seek relates to a proposed transaction and as noted in our earlier letter, confirmation of the tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular 70-6R3 (copy enclosed). Although we cannot provide a specific answer or a ruling with regard to your query, we can provide you with the following general comments.

Depending on the relationship between the mortgagor and the mortgagee, a mortgage will be a qualified investment for a RRSP under either subsection 4900(4) or paragraph 4900(1)(j) of the Income Tax Regulations (the "Regulations").

Pursuant to subsection 4900(4) of the Regulations, a mortgage secured by real property situated in Canada, or an interest therein, is a qualified investment for an RRSP unless the mortgagor is the annuitant of the RRSP, or is a person with whom the annuitant does not deal at arm's length pursuant to subsection 251(1) of the Income Tax Act.

If the requirements under paragraph 4900(4) of the Regulations are not met, a mortgage may still 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.

As noted in our previous letter to you, an annuitant cannot benefit from the existence of the mortgage. Consequently, the mortgage interest rate and other terms must reflect normal commercial practices and it must be administered as if it was a mortgage on a property owned by a stranger.

We trust that the above comments will be of assistance to you.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch