An individual, who is an RRSP annuitant, borrows the “Mortgage Loan” from the RRSP, with a principal residence mortgage granted in favour of the RRSP as security. The Mortgage Loan would be administered by an approved lender under the National Housing Act and would be insured as required by Reg. 4900(1)(j.1) by an approved private insurer. The Mortgage Loan proceeds would be used to make an interest-free shareholder loan to a corporation controlled by the individual.
After indicating that the Mortgage Loan would be a qualified investment under Reg. 4900(1)(j.1)(d), and that “the granting of the Mortgage Loan would be a benefit conditional on the existence of the subject RRSP,” so that “there would be an advantage” unless the s. (a)(ii) exception applied, CRA stated:
[T]he terms and conditions of a mortgage loan that satisfies the requirements of paragraph 4900(1)(j.1)… would, because of the underlying nature of [the mortgage insurance] requirements, usually be terms and conditions that persons dealing at arm’s length with each other would have entered into; therefore, in such a case, the exception provided by subparagraph (a)(ii) of the definition “advantage” would likely be met. However…a benefit conditional on the existence of the subject RRSP (and therefore an advantage under paragraph (a) of the definition of “advantage”) could arise…if, for example, there is a default by the borrower and he/she is enriched as a result of the default.