Words and Phrases - "mortgage"

A corporation that was unrelated to the taxpayers (“Zowtra”) granted a mortgage for $1.8 million (the “Zowtra Mortgage”) on Alberta lands that it had purchased for $5,000 to an Edmonton finance company (“U‑Have”) controlled by the same individual as Zowtra. U-Have sold undivided interests in this mortgage (bearing interest at 12%) to the self-directed RRSPs of 35 individuals, including the taxpayers, for $1.8 million in cash. The $1.8 million mortgage and these mortgage transfers were registered with the Alberta Government Services Land Titles Office. U-Have then paid the $1.8 million received by it to Zowtra. Apparently, essentially all the funds were transferred outside Canada (with none recovered by the RRSPs) or used to pay fees.

In finding that each purchased interest qualified as a “a mortgage secured by real property situated in Canada, or an interest therein” and, thus, as a qualified investment under former Reg, 4900(4), D'Arcy J stated (at paras. 55, 57):

The term mortgage is not defined in the Income Tax Act. During the relevant period, the Alberta Land Titles Act defined mortgage as meaning “a charge on land created merely for securing a debt or loan”.

… In my view, when the appellants’ RRSPs acquired the undivided interests in the Zowtra Mortgage the relevant RRSPs acquired an interest in a mortgage, that is, an interest in “a charge on land created . . . for securing a debt or loan”. As a result, the investment by the RRSPs in the Zowtra Mortgage was a qualified investment.