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:
Several questions as to what amount of land or commercial activity will be permitted in a "house" or a "housing project" for the purpose of determining whether a debt secured by a mortgage on such property would qualify under the MIC rules in subparagraph 130.1(6)(f)(i) of the Act.
Position:
General comments only since it is a question of fact and law.
Reasons:
Purpose of MIC legislation and Act - ultimate determination to be based on the particular facts and circumstances.
XXXXXXXXXX 963277
October 29, 1996
Dear Sir:
Re: Mortgage Investment Corporations and Subsection 130.1(6)
This is in reply to your letter of September 9, 1996, wherein you requested our views of the definition of the term "residential property" as used in the definition of mortgage investment corporation ("MIC") in subsection 130.1(6) of the Income Tax Act (the "Act"). Specifically, you have presented a number of fact situations dealing with various types of residential rural and/or commercial properties (ie: mixed-use properties) and asked whether debts secured by way of mortgages on these properties would qualify as "residential property" under the Residential Mortgage Financing Act (the "RMFA") and subparagraph 130.1(6)(f)(i) of the Act.
We are unable to consider specific fact situations in a general letter of opinion. Should you wish the views of the Department with respect to a completed transaction, you should contact the appropriate local Tax Services Office, or alternatively, if the situations presented constitute actual proposed transactions, you may request an advance income tax ruling in accordance with the Department's requirements as set forth in Information Circular 70-6R2 dated September 28, 1990 (as amended by special release dated September 30, 1992). Although we are not able to comment specifically on the examples you have provided, we can offer the following general comments.
The RMFA was repealed in 1993 and replaced by the National Housing Act (the "NHA"). A Notice of Ways and Means Motion was introduced on June 20, 1996, which proposes to amend subparagraph 130.1(6)(f)(i) of the Act to replace the term "residential property" with the terms "house" and "housing project" as now defined in the NHA. Since it is our view that the proposed amendment does not change the substance of subparagraph 130.1(6)(f)(i) our general views will be based on the draft proposals.
The reason why the MIC rules were introduced into the Act was to increase the flow of private sector financing into residential housing in Canada. The NHA was also introduced to promote the construction of new houses, the repair and modernization of existing houses, and the improvement of housing and living conditions in Canada.
The Act does not provide a specific definition of the terms house and housing project and instead directs one to the NHA. Subsection 2(1) of the NHA defines a "house" 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". Subsection 2(1) of the NHA also defines a "housing project" 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".
Based on the above definitions, where a house or houses are situated on a large tract of land the determination as to whether the land that would be considered "appurtenant to the house" or would form part of a "housing project"; or where such properties are of mixed-use, the determination as to what level of commercial space and/or other non-residential use buildings are "appropriate" to a particular housing project; remain as questions of fact to be resolved having regard to the particular facts, circumstances and purpose of the MIC legislation.
Keeping the aforementioned considerations in mind, we have expressed the view in the past, that commercial facilities that form part of a housing project, such as an apartment or condominium complex, should not normally exceed 20% of the gross floor area of the housing project. However, 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, then it is our view that no portion of a mortgage debt on such property would qualify as being a debt secured by way of mortgage on a house or a housing project for the purpose of subparagraph 130.1(6) of the Act. For example, in our view this would include such situations where a family residence was situated on land along with a retail gas bar operation, a convenience store operation, or as part of a full-time or seasonal motel/hotel type operation.
While we trust the foregoing comments are useful they are given in accordance with the practice referred to in paragraph 21 of the IC 70-6R2 and are not binding upon the Department.
Yours truly,
Section Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1996
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1996
Email this Content