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: How should joint shareholders be counted for purposes of 130.1(6)(d)?
Position: General comments provided.
Reasons: Legal determination.
XXXXXXXXXX 2019-083384
Sylvie Danis
August 12, 2020
Dear XXXXXXXXXX:
Re: Joint Shareholders – Mortgage investment corporation
This is in response to your correspondence dated December 10, 2019 wherein you requested clarification regarding the definition of “mortgage investment corporation” found in subsection 130.1(6) of the Income Tax Act (Act). More specifically, you asked us how shareholders should be counted for purposes of the shareholder requirement described in paragraph 130.1(6)(d) of the Act in a situation where a husband and wife have joint legal and beneficial ownership (joint tenants with rights of survivorship) of a share in a mortgage investment corporation (MIC).
Our comments
This technical interpretation provides general comments about the provisions of the Act and related legislation. 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 IC70-6R9, 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 throughout the year there were 20 or more shareholders of the corporation and that at any time in the year, no one shareholder owned or was deemed to own, directly or indirectly, more than 25% of the issued shares of any class of the capital stock of the corporation.
Subsection 248(1) of the Act defines the terms “shareholder” and “share”. The definition of shareholder expands on the ordinary meaning of that term by including a member or other person entitled to receive payment of a dividend. A share is defined to mean, in part, a share or a fraction of a share of the capital stock of a corporation.
A joint tenancy is a form of ownership of property in which the joint tenants have concurrent ownership and possession of the same property. The interest of each joint tenant is identical and the property cannot be sold or mortgaged without the consent of both joint tenants. By operation of the law dealing with property held in joint tenancy, in the event of the death of one of the joint tenants, the property will belong solely to the surviving joint tenant.
Whether two individuals with joint legal and beneficial ownership (joint tenants with rights of survivorship) of a share in a MIC should be counted as one shareholder or two individual shareholders for purposes of paragraph 130.1(6)(d) of the Act is a mixed question of fact and law that can only be determined after a review of all the facts and circumstances applicable to the particular situation. In our view, where two or more joint owners of a share of a corporation are considered one shareholder under relevant corporate law or are entitled to jointly receive any dividend paid on the share by the corporation, the joint owners of the share will generally be counted as one shareholder for purposes of paragraph 130.1(6)(d) of the Act.
We trust our comments will be of assistance.
Yours truly,
Bob Naufal
Manager
Financial Institutions Section
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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