20 July 1989 Ministerial Correspondence 58034 F - Mortgage Investment Corporation

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.

July 20, 1989

Dear Sir:

This is in reply to your letter of May 3, 1989, requesting information with respect to Mortgage Investment Corporations ("MIC") as defined in subsection 130.1(6) of the Income Tax Act (the "Act"). All references to statute unless otherwise indicated are to the Act.

To qualify as a MIC, a corporation must meet the requirements of subsection 130.1(6) throughout the taxation year. Whether a corporation has met the requirements of subsection 130.1(6) throughout a taxation year is a question of fact which can only be determined after a thorough examination of all the relevant facts. Generally we would not expect that a bonus in excess of a stated rate of interest in a mortgage would constitute something other than the investing of funds of the MIC. However, whether the participation of a MIC in any particular arrangement constitutes more than the investing of funds can only be determined with regard to the facts of the specific situation.

A MIC may be either federally or provincially incorporated and generally would specify in its articles of incorporation that it will carry on business as a MIC. There is no requirement in the Act that a MIC be registered with Revenue Canada. When the corporation files its annual tax return it would identify itself as a MIC on page one of the return. There is also no requirement that the taxation year end of a MIC must be December 31.

Subparagraph 130.1(1)(a)(i) allows a MIC a deduction for a taxable dividend, other than a capital gains dividend, and subsection 130.1(2) deems the dividend to have been received as interest by the shareholder, provided the dividend is paid during the taxation year or within 90 days after the taxation year end. Under the provisions of subsection 248(1) and paragraph 89(1)(j), a "stock dividend" is a "taxable dividend". Therefore the payment of a stock dividend would constitute payment for the purposes of subparagraph 130.1(1)(a)(i) and subsection 130.1(2). Pursuant to paragraph (c) of the definition of "amount" in subsection 248(1) the amount of such dividend would be equal to the amount of the increase in the paid-up capital of the corporation as a consequence of the dividend.

For the purposes of paragraph 130.1(6)(g), there is no specified length of time within which a MIC must dispose of real property acquired by foreclosure. However, the MIC must also continue to meet the conditions set out in either of paragraphs 130.1(6)(h) or 130.1(6)(i) with respect to the leveraging multiple described therein. In this regard, a property acquired as a result of a foreclosure would not, for the purposes of paragraph 130.1(6)(h), meet the requirements of subparagraph 130.1(6)(f)(i).

Under the provisions of subparagraph 146(1)(g) and paragraph 4900(1)(c) of the Income Tax Regulations (the "Regulations"), a share of the capital stock of a MIC is a qualified investment for a registered retirement savings plan ("RRSP") provided that the restrictions with respect to non-arm's length transactions in paragraph 4900(1)(c) of the Regulations are complied with.

Accordingly, the shares of a MIC that has loaned funds to an annuitant of a RRSP, the annuitant's brother, or a corporation controlled by the annuitant would not be qualified investments for the RRSP. Where a MIC has loaned funds to an employee of a corporation controlled by an annuitant of a RRSP and the employee and the annuitant deal with each other at arm's length, shares of the MIC would be a qualified investment for the RRSP. It should be noted that pursuant to paragraph 251(1)(b), it is a question of fact whether persons not related to each other were at a particular time dealing with each other at arm's length. The number of shareholders of the MIC is not relevant in determining the applicability of paragraph 4900(1)(c) of the Regulations as the non-arm's length restrictions apply to each individual shareholder.

While we hope our comments are of assistance to you they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate