Investment by RRSP in mortgage was qualified investment

Taxpayers acquired self-directed RRSP which acquired interest in mortgage

INCOME TAX - Deferred income plans

Two taxpayers, husband and wife, acquired self-directed registered retirement savings plan (RRSP) which acquired interest in mortgage for consideration in amounts of $42,500 and $37,000 in 2000. Taxpayers were not sophisticated investors, they owned restaurant and had heard about investment opportunity, which involved development of campground/trailer park and they thought this was good investment because of significant oil and gas development in area. Taxpayers also received legal advice about investment from lawyer but in end, money taxpayers had invested in mortgage was stolen from them. Minister reassessed both taxpayers to include consideration amounts in taxpayer’s taxable income and levied gross negligence penalty against them. Taxpayers appealed. Appeal allowed. Paragraph 146(9)(b) of Income Tax Act did not apply in situation where taxpayer directed his/her RRSP to make investment with arm’s length party for what taxpayer believed was fair market value consideration and investment turns out to be bad investment. It was concluded, on evidence, that taxpayers dealt at arm’s length with lead promoter of sale of mortgage and three companies involved in sale of interest in mortgage. It was found that when taxpayers RRSP acquired undivided interest in mortgage, relevant RRSP’s acquired interest in mortgage and as result, investment by RRSP in mortgage was qualified investment.

Stewart v. The Queen (2019), 2019 CarswellNat 139, 2019 TCC 22, Steven K. D'Arcy J. (T.C.C. [General Procedure]).

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