23 April 1999 External T.I. 9908935 - DIVIDENDS RECEIVED FROM MICS

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 taxable dividends received from a mortgage investment corporation that are deemed to have been received as interest by virtue of subsection 130.1(2) are included in the shareholder’s income in the year of receipt.

Position:

Yes.

Reasons:

Wording of subsection 130.1(2).

XXXXXXXXXX 			990893
J. Leigh
Attention:  XXXXXXXXXX 

April 23, 1999

Dear Sirs:

Re: Mortgage Investment Corporation

This is in reply to your letter dated March 26, 1999 concerning taxable dividends received by a shareholder of a mortgage investment corporation (“MIC”) which are deemed to have been received as interest. Specifically, you have asked when such interest must be included in the shareholder’s income and when the MIC must issue a T5 slip in respect of the deemed interest.

As noted in your letter, paragraph 130.1(1)(a) of the Income Tax Act (the “Act”) provides for the flow-through of income of a MIC by allowing the MIC to deduct in computing its income for a taxation year all taxable dividends, other than capital gains dividends, paid by the MIC during the year or within 90 days after the end of the year to the extent that those dividends were not deductible by the MIC in computing its income for the preceding year. Pursuant to subsection 130.1(2) of the Act, such dividends are deemed, for the purposes of the Act, to have been received by the shareholders as interest payable on a bond issued by the MIC after 1971. Since subsection 130.1(2) of the Act uses the word “received”, it is our view that the deemed interest must be included in a shareholder’s income for the taxation year in which it was received pursuant to paragraph 12(1)(c) of the Act.

With regard to the T5 reporting requirements, T5 slips reporting payments made in a calendar year must be filed and distributed to the respective recipients on or before the end of February of the following year in accordance with subsections 205(1) and 209(1) of the Income Tax Regulations.

In light of the above comments, in a situation where a MIC with a December 31, 1998 year-end declares and pays a taxable dividend other than a capital gains dividend on March 15, 1999, we confirm that such a dividend may be deducted by the MIC in computing its income for its 1998 taxation year and must be included in the shareholder’s income as interest for the shareholder’s 1999 taxation year. The MIC is required to issue a T5 slip reporting the deemed interest by February 29, 2000.

While we hope the foregoing comments are useful, they are given in accordance with the practice referred to paragraph 22 of Information Circular 70-6R3 dated December 30, 1996 and are not binding on the Department in respect of any particular situation.

Yours truly,

Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch