Principal Issues: [TaxInterpretations translation] Would the provisions of subsection 146(12) apply if the Agency acquired a legal hypothec on the taxpayer's RRSP?
Position: No
Reasons: The conditions for the application of section 146(12) would not be satisfied.
Ms. Chantal Comtois Ministry of Justice Québec Regional Office Guy-Favreau Complex 200 René-Lévesque Blvd. West 2007-025805 East Tower, 9th floor Michel Lambert CA, M.Fisc. Montréal QC H2Z 1X4
November 23, 2007
Dear Madam,
Subject: Legal hypothec on an RRSP
This is further to your email of November 1 asking whether the Agency's acquisition of a legal hypothec on a registered retirement savings plan ("RRSP") would engage the application of subsection 146(12).
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Names of the Parties
XXXXXXXXXX The Taxpayer
Canada Revenue Agency The Agency
The Facts
The Taxpayer is indebted to the Agency in the approximate amount of $XXXXXXXXXX. The assessments issued against him have been confirmed by a decision of the Tax Court of Canada. You stated that the amount owing is due.
However, the Taxpayer has appealed the Tax Court of Canada's decision to the Federal Court of Appeal. Pending a decision from that court, the Taxpayer proposed to the Agency that he pledge all of its assets as security. Thus, legal or conventional hypothecs have been registered on the majority of his assets.
However, the Taxpayer has an RRSP with an approximate value of $XXXXXXXXXX which, to date, has not been subject to a hypothec.
Your Question
You asked whether the provisions of subsection 146(12) would apply if the Agency acquired a legal hypothec on the RRSP.
Our Opinion
Article 2730 of the Civil Code of Québec allows certain creditors to acquire a hypothec. This article reads as follows:
Every creditor in whose favour a judgment awarding a sum of money has been rendered by a court having jurisdiction in Québec may acquire a legal hypothec on the movable or immovable property of his debtor.
He may acquire it by registering a notice describing the property charged with the hypothec and specifying the amount of the obligation (…). The notice is filed with a copy of the judgment; it must be served on the debtor.
The conditions for registration of a retirement savings plan in subparagraph 146(2)(c.3)(ii) provide that where a depositary is involved, the property held under the plan cannot be pledged, assigned or in any way alienated as security for a loan or for any purpose other than that of providing for the annuitant, commencing at maturity, a retirement income.
Note that the term "depositary", as defined in subparagraph (b)(iii) of the definition of "retirement savings plan" in subsection 146(1), includes, inter alia, a person who is a member of the Canadian Payments Association.
Paragraph 146(12)(a) provides that an RRSP that is revised or amended so that it no longer complies with the requirements for registration under section 146 is deemed no longer to be an RRSP. As noted in paragraph 2 of Interpretation Bulletin IT-415R2, paragraph 146(12)(b) provides that the fair market value of property held in an RRSP at the time it ceased to be an RRSP must be included in the annuitant's income.
We are of the view that the conditions for the application of subsection 146(12) are not satisfied by the mere fact that a creditor acquires a legal hypothec by virtue of article 2730 of the Civil Code of Québec.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Best regards,
Interim Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.