21 February 2001 External T.I. 2001-0066935 - Expenses of Real Property held in RRSP

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:

An RRSP has acquired a real property as a consequence of a mortgage foreclosure and is attempting to sell it. Can the RRSP trust incur reasonable expenses to put the property in a salable state and for its upkeep?

Position:

Yes.

Reasons:

Real property can be held by the trust in accordance with the position stated in paragraph 10 of IT-320R2 Registered Retirement Savings Plans - Qualified Investments. It is appropriate that the trust should be able to maintain the property and make it salable.

XXXXXXXXXX 		2001-006693
W. C. Harding
February 21, 2001

Dear XXXXXXXXXX:

Re: Expenses Related to Real Property held in an RRSP Trust

This is in reply to your letter of January 22, 2001, in which you asked whether certain expenses related to real property held in a trust governed by an RRSP may be paid out of funds held by the RRSP trust.

Because your request involves specific taxpayers and actual completed or proposed transactions, the responsibility for determining the tax consequences rests with the tax services offices. The appropriate tax services office may, upon disclosure of all of the relevant facts, be able to assist you in clarifying the tax consequences pertaining thereto. On the other hand, written confirmation of the tax implications of proposed transactions may be provided by this Directorate where the transactions are the subject matter of an advance income tax ruling request submitted in the manner set out in the Department's Information Circular IC70-6R4 Advance Income Tax Rulings a copy of which may be obtained from your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/E/pub/tp/ic70-6r4em/

Although we cannot comment directly on your situation, we are able to provide you with the following general comments.

Real property is not a qualified investment for an RRSP. However, as set out in paragraph 10 of the Agency's Interpretation Bulletin IT-320R2, Registered Retirement Savings Plans - Qualified Investments, real property may be held in an RRSP in situations where it is acquired as a consequence of a default in a mortgage.

Where an RRSP trust acquires real property, the RRSP trustee must hold the real property in the trust for the sole purpose of disposing of it and must, in fact, dispose of it within a reasonable period of time. A "reasonable period of time" is usually a year from the time of acquisition but may extend beyond a year provided any delays can be justified having regard to the facts and unusual circumstances of a particular case.

The trust governed by an RRSP is the owner of the real property and it would normally be expected that the trust, as the owner, would incur costs related to the maintenance and sale of the property. Accordingly, it is appropriate that these expenses should be paid out of the trust. Reasonable expenses could include such items as painting and carpeting where it is reasonable to incur these costs in marketing the property.

It should also be noted that because the property belongs to the trust, if the expenses are, in fact, paid by the annuitant of the RRSP, they would be treated as contributions to the RRSP.

We trust this explanation will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch