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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether the beneficial ownership of a mortgage acquired by a MIC pursuant to the terms of a trust agreement would qualify as a debt owing to the MIC that was secured on residential property for the purposes of subparagraph 130.1(6)(f)(i).
Position:
This is a question of fact which can only be determined after a review of the terms of the trust agreement.
Reasons:
Previous opinions.
5-960597
XXXXXXXXXX J. Leigh
Attention: XXXXXXXXXX
April 23, 1996
Dear Sirs:
Re: Mortgage Investment Corporations ("MICs")
This is in reply to your letter of February 8, 1996 in which you requested a technical interpretation on whether beneficial ownership of mortgages acquired by a MIC pursuant to a trust agreement would qualify as debts secured by residential property for the purposes of subparagraph 130.1(6)(f)(i) of the Income Tax Act (the "Act").
It appears that your request relates to a proposed fact situation. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for particular taxpayers with respect to specific contemplated transactions, a written request for an advance income tax ruling should be submitted in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30, 1992, issued by Revenue Canada. Nevertheless, we can offer the following general comments in response to your letter.
Subparagraph 130.1(6)(f)(i) of the Act requires that the cost amount of debts owing to the MIC be secured on "residential property," as defined in the Residential Mortgage Financing Act, whether by mortgages or in any other manner.
Generally, a mortgage would be considered owing to the MIC if the MIC is the registered owner of the mortgage. Where the MIC is not the registered owner but is given beneficial ownership of the mortgage pursuant to a trust agreement, the terms of the trust agreement will have to be reviewed in order to determine whether the mortgage investment made by the MIC under the trust agreement would qualify as a debt that was secured on residential property for the purposes of subparagraph 130.1(6)(f)(i) of the Act. In our view, the following factors would be relevant in making this determination:
-Whether the trust agreement gives the MIC direct recourse to the underlying residential property in the event of a default.
-Whether the trust agreement provides for the transfer of title to the mortgage to the MIC at any time at the option of the MIC in form acceptable for registration in the applicable land registry office.
-Whether the vendor had any obligations or rights with respect to the mortgage other than the holding of legal title.
With respect to the proposal in the April 26, 1995 draft legislation to amend subparagraph 130.1(6)(f)(i) of the Act to replace the reference to "residential property" as defined in the Residential Mortgage Financing Act with the corresponding terms in the National Housing Act, we confirm that the proposed amendment does not change the substance of that subparagraph. Accordingly, the proposed amendment has no effect on our views as expressed above.
We trust that our comments are of assistance to you.
Yours truly,
Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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