Principal Issues: Can a "locked-in" RRSP hold a mortgage as a qualified investment under the Income Tax Act?
Position: Question of Fact
Reasons: Although a debt obligation secured by a mortgage may be a qualified investment for an RRSP if certain conditions are met, an RRSP that is "locked-in" under federal or provincial pension standard legislation is subject to a locking-in agreement. Requirements under this agreement are not imposed by the Income Tax Act and as such, we are unable to provide any specific comments in this matter.
Original signed June 22 2007
XXXXXXXXXX
Dear XXXXXXXXXX:
Thank you for your letter received on April 10, 2007, written on behalf of one of your clients concerning a "locked-in" self-directed registered retirement savings plan (RRSP) and whether it is acceptable for such a plan to hold a mortgage as a qualified investment under the Income Tax Act. I apologize for the delay in responding.
The income tax legislation lists some of the types of qualified investments that may be held by an RRSP. A debt obligation that is secured by a mortgage may be a qualified investment for an RRSP, provided certain conditions are met. Specifically, when an RRSP annuitant is either the debtor or a person not dealing at arm's length with the debtor, a debt obligation that is secured by a mortgage on real property situated in Canada is a qualified investment for an RRSP when:
- the debt obligation is administered by an approved lender under the National Housing Act, and
- the debt obligation is insured either under the National Housing Act or by an approved private insurer.
The term "locked-in RRSP" has no defined meaning under the Income Tax Act; a locked-in RRSP is an ordinary RRSP for purposes of the income tax legislation. However, it is my understanding that when an RRSP is "locked-in" under pension standards legislation, it is subject to a locking-in agreement attached to the RRSP contract, which requires that the RRSP be held to provide a periodic pension income to the annuitant after he or she reaches a certain age. This requirement is not imposed by the Income Tax Act, but by the relevant provincial or federal pension standards legislation. Unfortunately, I am unable to comment on the requirements imposed by the various pension standards legislation.
I trust that this explanation is helpful.
Sincerely,
The Honourable Carol Skelton, P.C., M.P.
Kim Duval
599-6054
May 4, 2007
2007-023265