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.
Principal Issues: What constitutes a qualified investment?
Position: General comments provided.
XXXXXXXXXX
Dear XXXXXXXXXX:
Thank you for your correspondence dated January 19, 2017, and subsequent follow-ups about certain mortgage investments and the qualified investment rules for registered retirement savings plans (RRSPs) under the Income Tax Act. Thank you also for your understanding regarding the delay of this response.
The Canada Revenue Agency (CRA) has published its technical interpretations and positions about the types of property that constitute a qualified investment for an RRSP, as well as the tax consequences of acquiring, holding, and disposing of a non-qualified investment, in Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs. This document forms Chapter 1 of Folio 10 Registered Plans for Individuals, which you can find at canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans.html.
CRA technical experts have provided the following information about qualified investments:
A mortgage or hypothecary investment may be a qualified investment for an RRSP, provided certain conditions are met. Specifically, a debt obligation that is fully secured by a mortgage or hypothec on real or immovable property situated in Canada is a qualified investment for an RRSP, provided the borrower is not a connected person under the RRSP. A “connected person” is generally the annuitant under the RRSP or a person not dealing at arm’s length with the annuitant.
In general, a debt obligation would be considered to be fully secured if the value of the real or immovable property pledged by the borrower to the lender in the event of default is sufficient to cover the full amount of the principal and interest outstanding on the loan. For this purpose, any decline in the fair market value of the property after the debt obligation was issued can be ignored. Whether a debt obligation would be considered to be “fully secured” at a particular time is a question of fact. Additional information regarding holding a mortgage or hypothecary investment in an RRSP is provided in paragraphs 1.32 – 1.36 of Income Tax Folio S3-F10-C1.
Responsibility for compliance with the qualified investment rules generally lies with the trustee of the RRSP. In some cases, the trustee may require the annuitant to provide the trustee with evidence for the purpose of determining qualified investment status. In these cases, the trustee must exercise due diligence in satisfying itself that the documentation provided is sufficient. The obligations of the trustee of an RRSP under the Act are discussed in paragraphs 1.92 – 1.99 of Income Tax Folio S3-F10-C1.
For a technical interpretation of the qualified investment rules, you may contact Ms. Mary Pat Baldwin, an official in the Income Tax Rulings Directorate, at 613-670-9067. Please note that the CRA accepts collect calls.
The Government of Canada is committed to maintaining the integrity and fairness of Canada’s income tax system. This system is based on self-assessment, where taxpayers provide the facts about their income, determine their deductions and credits, and calculate their taxes payable. While there is a high degree of public compliance with the law, the CRA can maintain this system only by continually reviewing and auditing tax returns. CRA officials consider all factors, including information they receive from the public, when determining which audits they will conduct.
You indicate that you anonymously faxed information to the CRA. The CRA encourages individuals to call, write, or fax its Informant Leads Program if they know or suspect that a taxpayer or benefit recipient is violating Canada’s tax laws. The Informant Leads Program helps the CRA identify non-compliant individuals and businesses. The CRA receives and processes more than 30,000 informant leads every year. More information on this program is available at cra.gc.ca/leads.
I can assure you the CRA reviews all the information it receives and makes every effort to make sure taxpayers follow the law. However, the confidentiality provisions of the Income Tax Act prohibit the CRA from disclosing any information about a taxpayer to a third party. As a result, the CRA does not provide any feedback or updates on leads received or subsequent actions taken.
I appreciate the opportunity to respond to your concerns and trust the information I have provided is helpful.
Sincerely,
The Honourable Diane Lebouthillier
Minister of National Revenue
Lita Krantz
905-721-5091
2017-071261
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