| 5-923380 | |
| 24(1) | D.S. Delorey |
| (613) 957-8953 |
Attention: 19(1)
December 22, 1992
Dear Madam/Sir:
This is in reply to your letter of November 9, 1992 concerning a proposed lending arrangement whereby the loan is secured by the proceeds of a registered retirement savings plan ("RRSP").
We note that your enquiry relates to a proposed transaction. Written confirmation of the tax implications inherent in a proposed transaction is given by this Directorate only where the proposed transaction is the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. We offer, however, the following general comments.
In order to definitively reply to your enquiry it would be necessary to have not only the copy of the draft loan arrangement submitted with your letter, but also a copy of the related RRSP. Other required information would include the terms of the related loan and details of the relationship between the issuer of the RRSP and the lender. In processing a relevant advance ruling request, issues that we would be considering would include the following:
1. Whether or not it could be said that an advantage has been extended to the annuitant that is conditional upon the existence of the RRSP. If so, whether or not the relationship between the issuer and the lender is such that it could be said that the issuer is party to the extension of the advantage with the result that the penalty under subsection 146(13.1) of the Income Tax Act (the "Act") would be exigible.
2. Whether or not it could be said that the loan is made on the security of a right under the RRSP such that subsection 146(13) of the Act would deem there to be a new plan substituted for the RRSP.
3. If 146(13) applies, whether or not it could be said that the new plan (which is essentially the old plan with the loan arrangement superimposed) does not comply with the requirements of section 146 of the Act for registration with the result that subsection 146(12) of the Act would apply to include in the annuitant's income the fair market value of the plan.
As indicated above, we are prepared to further consider these and other relevant issues should you decide to request an advance income tax ruling with respect to the proposed loan arrangement.
We trust our comments are of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate