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.
7-911299
24(1)
Re: Mortgages held as property of RRSPs
This is in reply to your memorandum dated March 25, 1991, which was referred to us for reply on May 13.
24(1)
IT Bulletin 110R2 discusses at some length the requirements for an amount to be accepted as a gift for purposes of the charitable donations provisions of the Act and in particular states at subparagraphs 3(b) and (c) thereof, that a gift must be made voluntary, without legal obligation and without any expectation of return.
Halsbury's Laws of England states at 20 Hals (4th) para.l:
A gift inter vivos may be defined shortly as the transfer of any property from one person to another gratuitously while the donor is alive and not in expectation of death. It is an act whereby something is voluntarily transferred from the true possessor to another person with the full intention that the thing shall not return to the donor. It has been said that there must be an intention on the part of the recipient to retain the thing entirely as his own without restoring it to the giver. This it seems is incorrect. A gift appears to be effective when the donor intends to make it a gift and the recipient takes the thing given and keeps it knowing that he has done so. The mere fact that the recipient regards the thing as a loan and intends so to treat it does not by itself prevent the transaction from being a gift.
Given the limited background information provided with your referral, our opinion can not be given without some doubt and in particular, some significant doubts with respect to the legality of the transactions vis a vis mortgage laws and the rights of the 1st mortgage holder(s). Nevertheless, it seems clear to us that the Fair Market Value of each contributor's RRSP is expected to increase and will increase by an amount at least equal to the value of the annuitant's contribution to 24(1) Therefore, as he is the beneficiary of his RRSP, this increase can reasonably be considered to be an (expected) return of his gift to him with the consequence that it cannot properly be accepted as being a charitable donation.
While the amount paid by the annuitant is not a deductible donation, the amount paid by 24(1) may, in our opinion, reasonably be considered to be one of two things:
1) a gift (in the sense contemplated under Part X.l of the Act) by the annuitant to his own RRSP; or
2) a premium being paid by or on behalf and at the request of the annuitant to his RRSP.
We could not agree that it is an amount paid as consideration for the mortgage to the extent the amount exceeds the Fair Market Value of the mortgage.
In either of the above two cases, it is our opinion that the amount will be subject to the provisions of part X.1 of the Act. Therefore, to the extent the payment contributes to any excess contributions under the plan, it will be subject to a Part X.l tax of 1% per month.
If the amount may properly be defined as the annuitant's gift to his own RRSP, no part of it will be deductible as a contribution to the RRSP but it will remain taxable upon its withdrawal. If, on the other hand, it can be described as a "premium" as defined in the Act, it may be deductible as a normal RRSP contribution to the extent allowable under the Act. With the information at hand we are unable to provide a conclusive opinion in this respect and suggest that, should the need arise, you resubmit this question to our office for further review together with more complete information.
for DirectorFinancial Industries DivisionRulings Directorate
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