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: 1) Where is the legislative requirement that a MIC is required to invest in 50% residential and 50% commercial properties?
2) Whether a MIC may invest funds in debts owing to the corporation that are secured by agricultural properties?
Position: 1) Paragraph 130.1(6)(f) of the Act requires that at least 50% of the cost amount of all of the property of a MIC must generally consist of debts owing to the corporation that were secured inter alia by mortgages on houses as defined in section 2 of the National Housing Act, deposits standing to the credit of the MIC in the records of a bank or credit union and money. This condition must be met throughout the taxation year.
2) This is a question of fact to be determined on a case by case basis. Generally, commercial facilities that form part of a housing project should not normally exceed 20% of the gross floor area of the housing project.
Reasons: 1) The legislation 2) The legislation, including the National Housing Act.
XXXXXXXXXX Alex Johnstone
January 12, 2018
Re: Subsection 130.1(6) - Mortgage investment corporation
This is in reply to your email of October 4, 2016, concerning the definition of “mortgage investment corporation” (“MIC”) under subsection 130.1(6) of the Income Tax Act (the “Act”). In particular, you note that it is your understanding that a MIC is required to invest in 50% residential properties and 50% commercial properties and you ask where this investment requirement is stipulated in the MIC definition. You also ask whether a MIC may invest funds in debts owing to the corporation that are secured by agricultural properties. We apologize for the delay in responding.
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 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Section 130.1 of the Act sets out rules that apply to MICs and their shareholders. Subsection 130.1(6) of the Act sets out conditions all of which must be satisfied throughout a taxation year for a corporation to be considered a MIC.
Paragraph 130.1(6)(f) of the Act specifies that at least 50% of the cost amount of all of the property of the corporation must consist of money of the corporation plus
debts owing to the corporation that were secured by mortgages, hypothecs or in any other manner, on houses as defined in section 2 of the National Housing Act (“NHA”) or on property included within a housing project (as defined in section 2 of the NHA as it read on June 16, 1999), and
i) amounts of any deposits standing to the credit of the corporation in the records of a bank or a credit union.
Under section 2 of the NHA, a “house” is defined as
a building or movable structure, or any part thereof, that is intended for human habitation and contains not more than two family housing units, together with any interest in land appurtenant to the building, movable structure or part thereof.
Under the same section, as it read on June 16, 1999, a “housing project” is defined as
a project consisting of one or more houses, one or more multiple-family dwellings, housing accommodation of the hostel or dormitory type, one or more condominium units or any combination thereof, together with any public space, recreational facilities, commercial space and other buildings appropriate to the project, but does not include a hotel.
We have previously opined that commercial facilities that form part of a housing project, such as an apartment or condominium complex should not exceed 20% of the gross floor area of the housing project. We have also opined that in other types of situations where property is used for commercial and residential activities and/or where the particular property is not zoned as being residential, no portion of a mortgage debt on such a property would be considered as being a debt secured by way of mortgage on a house or a housing project for the purpose of subsection 130.1(6) of the Act.
Whether a particular corporation meets the definition of a mortgage investment corporation throughout a particular taxation year is a question of fact. This would be determined on a case-by-case basis having regard to the relevant facts and circumstances of the particular situation including a review of any relevant documentation.
We hope 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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