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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
This is in reply to your letter of November 3, 1993 concerning paragraph 4900(1)(j) of the Income Tax Regulations (the "Regulations") which provides that non-arm's length mortgages are qualified investments for a trust governed by a deferred income plan ("DIP trust") provided certain requirements are met.
As you state in your letter, one of the requirements for such a mortgage to be a qualified investment for a DIP trust is that it be insured under the National Housing Act or by a corporation offering its services to the public in Canada as an insurer of mortgages. You suggest in your letter, however, that such insurance is not obtainable and thus it is not possible for a DIP trust to invest in a non-arm's length mortgage. In light of this, you pose the following questions:
1. How does Revenue Canada plan to address the issue of the failure of the marketplace to provide the necessary insurance coverage to comply with paragraph 4900(1)(j) of the Regulations?
2. Are steps being taken to change paragraph 4900(l)(j) of the Regulations? If not, what is required to initiate such a change?
3. Why is mortgage insurance required on non-arm's length mortgages (i.e., a mortgage to which paragraph 4900(1)(j) of the Regulations applies) and not on arm's length mortgages (i.e., a mortgage to which subsection 4900(4) of the Regulations applies) when arm's length mortgages are a high risk investment with a greater chance that the annuitants will lose their retirement funds?
We appreciate your concern; however, Revenue Canada does not have discretionary authority to waive the specific requirements of the Regulations. Recommending changes to existing legislation is the responsibility of the Department of Finance and we are therefore forwarding a copy of your letter to them for whatever action they consider appropriate.
We trust our comments are of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directoratec.c. Department of Finance L'Esplanade Laurier 140 O'Connor Street Ottawa, Ontario K1A 0G5
HAA 7255-7
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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