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.
Principal Issues: Whether a corporation would qualify as a mortgage investment corporation if it is wholly-owned by a publicly traded holdco
Reasons: Paragraph 130.1(6)(d) requires that there be a minimum of 20 shareholders of which none would hold more than 25% of the shares of any class of the capital stock of the corporation.
October 26, 2015
Re: Establishment of a Mortgage Investment Corporation
This is in response to your letter of July 15, 2015 concerning the establishment of a corporation and the conditions that must be met in order for that corporation to qualify as a mortgage investment corporation (“MIC”) for income tax purposes.
You described a hypothetical corporate structure whereby a parent corporation that is publicly traded on a Canadian stock exchange would wholly own several corporations providing financial services and wealth management offerings. The desired outcome is that one of these corporations would meet the conditions to be considered a MIC. In particular, you asked for our views on whether the shareholding test in paragraph 130.1(6)(d) of the Income Tax Act (the “Act”) would be met in the circumstances described. If the answer to this question is negative, you asked whether our response would be different if there was a share ownership limitation placed on the publicly traded parent corporation of no more than 25%.
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.
To qualify as a MIC for purposes of the Act, a corporation must, throughout the taxation year, meet the conditions in subsection 130.1(6) of the Act. Paragraph 130.1(6)(d) of the Act requires that the number of shareholders of the corporation be not less than 20 and that no one shareholder hold, directly or indirectly, more than 25% of the issued shares of any class of the capital stock of the corporation. However, subsection 130.1(8) of the Act provides an exception which deems the corporation to have complied with paragraph 130.1(6)(d) of the Act throughout the first taxation year in which it carries on business if the test in paragraph 130.1(6)(d) of the Act is met on the last day of its first taxation year.
In the situation described, it is our opinion that a corporation wholly owned by a publicly traded corporation would not meet the shareholding test in paragraph 130.1(6)(d) of the Act regardless of any share ownership limitations placed on the publicly traded parent corporation. In our view, the conditions in paragraph 130.1(6)(d) of the Act are directed at the shareholdings of the corporation itself and not its parent corporation. As a result, the wholly-owned subsidiary would not qualify as a MIC.
We trust that these comments will be of assistance.
Financial Institutions Section
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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