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.
900568 M. Shea-DesRosiers (613) 957-8953
24(1)
19(1)
May 14, 1990
Dear Sirs:
Re: Paragraph 4900(1)(c) of the Income Tax Regulations (the "Regulations")
This is in reply to your letter of April 24, 1990 concerning the above-mentioned subject.
You describe the following situation:
1. Mr. X owns one partnership unit of, and is a limited partner of, the XYZ Partnership (hereinafter "XYZ"). There are 199 other limited partners who are individuals and who each own one partnership unit. Each unit entitles the holder thereof to one vote at meetings of partners and ranks on parity with each other unit. All of the limited partners deal at arm's length with each other and with the general partner. The general partner controls the day-to-day affairs of XYZ.
2. MIC ("MIC") is a mortgage investment corporation as defined in subsection 130.1(5) of the Income Tax Act. There are 200 issued and outstanding common shares of MIC.
3. Each limited partner is the annuitant of a separate RRSP and each RRSP owns 1 share of the MIC.
You enquire as to whether, if MIC lends funds to XYZ (with interest at commercial rates and upon commercial terms) on the security of a mortgage on real property owned by XYZ, would the shares of MIC cease to be a qualified investment for Mr. X's RRSP and the RRSPs of his 199 partners?
Generally speaking, paragraph 4900(1)(c) of the Regulations gives qualified status to shares of an MIC unless the annuitant of the RRSP trust which holds the shares is indebted to the MIC. In the situation described, it is essentially a legal question whether a partner would be considered indebted to the MIC. It is possible that the finding might be that a partner (who is also the RRSP annuitant) would be the mortgagor of his undivided interest in the partnership property and to that extent the MIC share would not be a qualified investment for the partner's RRSP under paragraph 4900(1)(c) of the Regulations.
We trust the foregoing will be of assistance to you.
Yours truly,
Wayne Douglas for Director Financial Industries Division Rulings Directorate
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