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 an FI secure loans with payments to be made out of an RRSP?
Position:
The question must be answered on a case by case basis with the involvement of Registered Plans Division.
Reasons:
An in depth review of this issue was done in 1992 and 1993 and it was then determined that a general reply should not be provided. There is no indication that any further clarification has been provided since.
XXXXXXXXXX 992696
W. C. Harding
Attention: XXXXXXXXXX
October 29, 1999
Dear Sirs:
Re: RRSP Catch-up Loans and Directions
This is in reply to your letter of June 21, 1999, addressed to our Winnipeg Tax Services Office and referred to us for reply.
In your letter you requested a technical interpretation on whether a certain arrangement to secure a loan with a customer direction to pay any RRSP redemption of proceeds to the lender, would violate paragraph 146(2)(c.3), and subsections 146(12) and (13) of the Income Tax Act (the "Act")
While you have indicated that your inquiry pertains to a hypothetical situation, it appears to us that it relates to a specific proposed transaction. Written confirmation of the tax implications inherent in proposed transactions are provided by this Directorate only where the proposed transactions are the subject matter of an advance income tax ruling request submitted in the manner set out in the Department's Information Circular IC70-6R3 Advance Income Tax Rulings. which is available from your local Tax Services Office or on the internet at http://www.rc.gc.ca/E/pub/tp/706r3et/706r3e.txt.html. In addition, if the proposal involves the development of a specimen RRSP, approval of the plan by the Directorate's Registered Plans Division would also be required. Accordingly we cannot provide answers to your inquiry at this time. However, we can offer the following general comments:
In order to definitively reply to your inquiry it would be necessary to have not only the copy of the draft loan arrangement submitted with your letter, but also a copy of the related RRSP. Other required information would include the terms of the related loan and details of the relationship between the issuer of the RRSP and the lender. In replying to your request, issues that we would be considering would include the following:
1 Whether or not it could be said that an advantage has been extended to the annuitant that is conditional upon the existence of the RRSP. If so, whether or not the relationship between the issuer and the lender is such that it could be said that the issuer is party to the extension of the advantage with the result that the penalty under subsection 146(13.1) of the Income Tax Act (the "Act") would be exigible.
2. Whether or not it could be said that the loan is made on the security of a right under the RRSP such that subsection 146(13) of the Act would deem there to be a new plan substituted for the RRSP.
3. If 146(13) applies, whether or not it could be said that the new plan (which is essentially the old plan with the loan arrangement superimposed) does not comply with the requirements of section 146 of the Act for registration (in particular, paragraph 146(2)(c.3) of the Act) with the result that subsection 146(12) of the Act would apply to include in the annuitant's income the fair market value of the plan.
As indicated above, we are prepared to further consider these and other relevant issues with respect to the proposed loan arrangement should you decide to request an advance income tax ruling and/or approval of a specimen RRSP.
We trust our comments are of assistance.
Yours truly,
P. Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
c.c. M. Virani
Registered Plans Division
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