| 19(1) | File No. 5-9278 |
| D. Duff | |
| (613) 957-3498 |
January 18, 1990
Dear Sirs:
Re: Qualified Investments for a Registered Retirements Savings Plan
This is in reply to your letter of December 15, 1989 wherein you requested a clarification of our administrative position regarding the requirements necessary for a non-arm's length participating mortgage to be a qualified investment for a Registered Retirement Savings Plan (RRSP). You also requested our opinion whether your client's mortgage, as described in your letter, would be a qualified investment for a RRSP.
The Department's position on non-arm's length mortgages is indicated in paragraph 8 of the special release to Interpretation Bulletin IT-320R. As indicated therein, and as you pointed out in your letter, the issue is whether such a mortgage reflects normal commercial practice and no benefit is conferred on the annuitant. It would be impossible to elaborate on all possible situations. The particular facts of each case must be assessed to determine if the above criteria is met.
As noted in Information Circular 70-6R, we do not give opinions in respect of proposed transactions other than as a reply to an advance income tax ruling request. Consequently we cannot give an opinion on the eligibility of your client's proposed mortgage, but we will offer the following general comments.
The proposed mortgage has a nil interest rate, no fixed maturity date, the principle is due on sale of the property and the RRSP is entitled to a share in the gain from the sale of the property equal to the proportion that the mortgage is to the total cost of the property. Based on this it would appear that the RRSP would be acquiring an equity interest in the property and not a mortgage. As such, it would not qualify as an investment for a RRSP.
Finally, the question of whether a mortgage reflects normal commercial practice and does not confer a benefit on the annuitant is a question of fact which may prevent the issuance of a ruling. As indicated in paragraph 14(1) of Information Circular 70-6R, a ruling will not be given if all of the pertinent facts cannot be determined at the time of the request for the ruling.
We trust the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate