16 April 1997 External T.I. 9707975 - RRSP SECURITY FOR DEBTS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

We were asked to consider an arrangement where funds held in an RRSP would be used to secure a debt obligation.

Position:

We did not comment on specific proposal but identified the law that applies when RRSP property is used to secure debt obligations.

Reasons:

We could not comment on an actual proposal but could clarify what provisions of the Act might apply.

XXXXXXXXXX 970797

April 16, 1997

Dear XXXXXXXXXX:

Re: Qualified Investments for a Registered Retirement Savings Plan

This is in reply to your letter of January 17, 1997, to the Winnipeg Tax Services Office, which was referred to us for reply.

You are considering the feasibility of holding certain life insurance policies in an RRSP, and using them as security for a personal loan.

From the information provided in your letter it appears your enquiry relates to a specific factual proposal. Written confirmations of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Accordingly, we can not address the specific situation detailed in your letter at this time. However, we can provide you with the following general information that you may find to be of assistance.

The Income Tax Act (the "Act") provides that life insurance policies may be acquired by trusts governed by RRSPs only if those policies conform to certain conditions detailed in section 198 of the Act. These are discussed in the Department's Interpretation Bulletin IT-408R, a copy of which is enclosed.

The Act also provides that a trust governed by an RRSP may not use property of the trust as security for a loan without tax consequences. In particular, subsection 146(10) provides that the fair market value of any property used as security must be included in the income of the annuitant of the RRSP for the year in which the property commenced to be used as security.

The above comments are based on our understanding of the law as it applies in general. However, they may or may not apply to the circumstances of a particular case. The comments do not form an advance income tax ruling and they are not binding on the Department.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c. Elaine Harris
Winnipeg Tax Services Office