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), CRA stated:
[W]here a mortgage loan that satisfies the requirements of paragraph 4900(1)(j.1)…is granted by an RRSP, the underlying nature of those requirements is such that the fair market value of the property of the RRSP is not usually reduced immediately after the granting of the mortgage loan. However, an RRSP strip could arise after the granting of the Mortgage Loan if, for example, there is a default under the Mortgage Loan by the borrower, the subject RRSP sustains a loss of principal or interest under the Mortgage Loan as a result of the default, the loss or a portion of the loss is not covered by the mortgage default insurance policy, and the purpose test in the definition of “RRSP strip” is met.