26 April 2002 External T.I. 2001-0096105 - RRSP QUALIFIED INVESTMENTS

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Can a mortgage on farmland owned by a corporation be a qualified investment for an RRSP if the annuitant of the RRSP, his spouse and his two adult children are the only shareholders of the corporation.

Position:

Yes, provided that the provisions of paragraph 4900(1)(j), where the annuitant and the mortgagor are at non-arm's length, are satisfied.

Reasons:

The Corporation does not deal at arm's length with the annuitant of the RRSP pursuant to paragraph 251(1)(a) and subparagraph 251(2)(b)(ii).

XXXXXXXXXX 			2001-009610
G. Kauppinen
April 26, 2002

Dear XXXXXXXXXX:

Re: Registered Retirement Savings Plan ("RRSP")- Qualified Investments

This is in reply to your letter dated July 31, 2001 and your facsimile transmission dated April 10, 2002 regarding mortgages as qualified investments for RRSPs. You asked for our views on whether a mortgage on farmland owned by a corporation can be a qualified investment for an RRSP, if the annuitant of the RRSP, his spouse and his adult children are the only shareholders of the corporation.

Your Query

Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R4 dated January 29, 2001, issued by the Canada Customs and Revenue Agency ("CCRA"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. We are prepared, however, to offer the following general comments.

Our Comments

In a situation where the annuitant of an RRSP is a member of a related group which controls a corporation, pursuant to paragraph 251(1)(a) and subparagraph 251(2)(b)(ii) of the Income Tax Act, the annuitant and the corporation will not be at arm's length.

Pursuant to paragraph 4900(1)(j) of the Income Tax Regulations ("Regulations"), where the mortgagor is not at arm's length with the annuitant of an RRSP, a mortgage in respect of real property will be a qualified investment for an RRSP, if it is:

A. administered by an approved lender under the National Housing Act, and

B. insured

(I) under the National Housing Act, or

(II) by a corporation that offers its services to the public in Canada as an insurer of mortgages and that is approved as a private insurer of mortgages by the Superintendent of Financial Institutions pursuant the powers assigned to the Superintendent under subsection 6(1) of the Office of the Superintendent of Financial Institutions Act.

We refer you to paragraph 9 of Interpretation Bulletin IT-320R2 entitled Registered Retirement Savings Plan - Qualified Investments for further details.

Accordingly, a mortgage on farmland owned by a corporation can be a qualified investment for an RRSP, when the annuitant of the RRSP does not deal at arm's length with the corporation, provided that the requirements of paragraph 4900(1)(j) of the Regulations are satisfied.

We trust our comments will be of assistance to you.

Yours truly,

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