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:
Whether the rate of interest on RRSP loan should be compared to rate offered on unsecured loan to determine if 146(2)(c.4) has been offended.
Position TAKEN:
No.
Reasons FOR POSITION TAKEN:
RRSP issuers generally provide that RRSP annuitant cannot get property out of RRSP account without first directing it to a non-RRSP account which then can be used by issuer to satisfy any outstanding RRSP loan.
November 2, 1994
Registered Plans Division Rulings Directorate
Stella Black P. Spice
Director (613) 957-8953
Attention: Allan Wong
Audit Section
942733
RRSP Advantages - Low Interest RRSP Loan
This is in reply to your memorandum of October 20, 1994, in which you ask whether the rate of interest applicable to unsecured loans is the rate to be used for comparing to rates applicable to loans provided for RRSP contributions. Your query relates to paragraph 146(2)(c.4) of the Income Tax Act and the Department's position that we consider that an advantage is extended to the annuitant by the issuer where the rate of interest on loans for RRSP contributions is more favourable than the rate offered by the same issuer on non-RRSP loans "on similar terms".
Since RRSP loans will differ from issuer to issuer it is not possible to state that an unsecured or secured non-RRSP loan is one that in every case has similar terms to that provided for RRSP contributions. It has been our experience, however, that in most cases the issuer will require that an RRSP borrower provide that property in the RRSP may not be received by the annuitant if an RRSP loan is outstanding without first directing that the RRSP property be transferred to a non-RRSP account with the issuer. The issuer then has the right to apply the property in the non-RRSP account to satisfaction of the loan before the annuitant may receive any property. Although the RRSP property is not security for the loan, provision is made for the issuer's interests to be secured in the event the annuitant attempts to receive amounts out of the RRSP account before the loan is paid off. In our view, these arrangements result in the RRSP loan being more similar to a secured loan than to an unsecured loan.
We trust these comments assist.
for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch
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