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I am considering helping friends or family out of credit card debt, which is costing them ~18% per year by giving them a loan at more like ~3% (kind of like consolidated credit/debt).

Is there anyways to register that loan or "investment" within a tax shelter like a TFSA or RRSP? It's not going to be very much income or profit for me at all but if it were possible I would consider doing that.

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    While I don't know about Canada, in the US there's a thing called "self-directed IRA". Why am I telling you this? Because if it exists in Canada - it will likely be under the same terms: no dealings with the family and arm's-length transactions with others. Your loan doesn't seem to fit. 3% is not that much to trouble yourself over tax-sheltering, IMHO.
    – littleadv
    Commented Jun 4, 2013 at 23:12
  • +1 If they have similar code, this is the perfect answer. not comment, but I see why you put it here for now.
    – JTP - Apologise to Monica ♦
    Commented Jun 5, 2013 at 1:29
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    The Canadian equivalent to IRA (RRSP) doesn't allow investment in personal loans, even the 'self-directed' version. You can make mortgage loans, but they require a very complex setup.
    – DJClayworth
    Commented Jun 5, 2013 at 13:56
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    Be very, very wary of lending money to friends or family. General rule is to lend only money you can afford to lose. Probably not worth it to you to charge 3%, either, not enough return. :(
    – ChrisInEdmonton
    Commented Jun 28, 2013 at 19:11
  • I am being wary and I am getting everything signed in writing. 3% is better than nothing and it helps my family from paying 18% so in a way that is a 15% gain for them
    – Mike Saull
    Commented Jun 28, 2013 at 20:22

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I've investigated 2 different banks regarding this, Canada Trust and CIBC.

  • Canada Trust used to allow loans from your self-directed RRSP to yourself or a third party for the purposes of a second mortgage on a home, they no longer do that.

  • CIBC will allow the loaning of money to yourself or a third party from your self-directed RRSP as a second mortgage on a property with a few rules:

1) The interest rate you charge must closely resemble CIBC's own rates

2) CIBC must hold the first mortgage

3) The loan has to be for a mortgage on a real estate property. No other collateral or unsecured loans are permitted.

I had to phone-chase for an hour or so before I finally found someone who knew what I was talking about, and was willing to answer my questions, but offered little extra information. I got the sense I was being discouraged from asking.

Another way to accomplish this is to forget the RRSP and make the loan.

When lending as a person to a person, you must declare the profit you make on the deal as income on your personal taxes. If you want to make a career of making personal loans, you can set yourself up as a corporation or sole-proprietorship and claim expenses against the income. Expenses can include delinquent clients, a portion of your home's expenses if you set up an office, a computer, part of your phone bill, perhaps part of your car expenses if you travel to your family to pick up and drop off cheques, or visit the bank.

Depending on the size of the loan you may incur more expenses than the income you generate, showing the CRA that you have actually lost money in making this loan. Keep in mind, however, the CRA doesn't want you to open a business to lose money; they want you to have a "Reasonable expectation of profit" when you open your business. They typically give you 5 years to turn a profit, and may start auditing your business after that if you're still running a loss.

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  • Note - OP's question was specific to making the loan via a tax-sheltered account. @littleadv (and I) can answer for a US scenario, but not Canada.
    – JTP - Apologise to Monica ♦
    Commented Feb 20, 2014 at 20:00

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