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.
Principal Issues: Whether tax under Part XI.01 pursuant to sections 207.04 or 207.05 of the Income Tax Act applies after March 22, 2011, to an individual who holds a mortgage investment in his/her Registered Retirement Savings Plan.
Position: Question of Fact
Reasons: Part XI.01 tax pursuant to sections 207.04 or 207.05 will not generally apply where a mortgage is a prescribed excluded property and the controlling individual has not used the investment to avoid tax.
XXXXXXXXXX
2012-046715
March 7, 2013
Re: Mortgage held in RRSP
This is in response to your request for a written interpretation to determine whether an individual annuitant (the "Individual") would become liable for Part XI.01 tax pursuant to section 207.04 or section 207.05 of the Income Tax Act (the "Act") after March 22, 2011, on a mortgage held by a Registered Retirement Savings Plan ("RRSP") which the Individual controls. Based on the information provided, the Individual holds a mortgage secured by real property situated in Canada, inside their self-directed RRSP trust (the "Investment"). The Investment is administered, approved and insured under the National Housing Act and is a qualified investment pursuant to subsection 146(1) of the Act and paragraph 4900(1)(j.i) of the Regulations to the Act (the "Regulations"). The Individual intends to use funds from the Investment for personal purposes.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year. We are, however, prepared to offer the following general comments, which may be of assistance.
The tax avoidance measures in respect of prohibited investments and advantages, including RRSP strips, are found in Part XI.01 of the Act and are intended to ensure that RRSP savings are maintained within the intended parameters. The advantage rules, together with the prohibited investment rules, represent overriding investment restrictions for RRSPs.
Where an investment property held by an RRSP trust becomes a prohibited investment after March 22, 2011, the controlling individual is subject to tax under Part XI.01 of the Act. However, the definition of a prohibited investment in subsection 207.01(1) of the Act excludes prescribed excluded property. Prescribed excluded property includes an insured mortgage described in paragraph 4900(1)(j.1) of the Regulations as made applicable for purposes of subsection 207.01(1) by reason of section 5000 of the Regulations. Based on the information provided, the Investment is a prescribed excluded property as described in paragraph 4900(1)(j.1) of the Regulations and, therefore, would not constitute a prohibited investment.
Under proposed amendments to the legislation available on the Department of Finance Canada website, http://www.fin.gc.ca/drleg-apl/ita-lrir-dec12-n-eng.pdf, effective March 23, 2011 and if enacted, an excluded property will continue to include an insured mortgage described in paragraph 4900(1)(j.1) of the Regulations and will also include an insured mortgage for purposes of the definition of RRSP strip as defined in subsection 207.01(1) of the Act.
We trust these comments will be of assistance to you.
Yours truly,
Lita Krantz CPA, CA
for Director,
Deferred Income Plans, Section II
Financial Industries and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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