CRA ruling requires that a mortgage investment corporation, which is carrying on bad activities through a subsidiary LP, not own or direct the LP's general partner

One of the requirements for a corporation to qualify as a mortgage investment corporation is that "its only undertaking was the investing of funds...and it did not manage or develop any real…property."  CRA has ruled that it is acceptable for a MIC to transfer a property (which it previously acquired on a mortgage foreclosure) to a newly-formed LP in consideration for LP units (presumably representing 99% or more of the LP equity), with the LP then developing the property – provided that limited liability for the MIC will be maintained as required by s. 253.1.

Consistently with CRA's policy views (2011-0415641E5), the LP would be prohibited from investing in foreign assets.

An oddity: the letter stipulates that "Mr. B," who is a relative of a significant MIC shareholder who has managerial control of it, will at all times be the sole shareholder, director and officer of the general partner of the LP.  Someone apparently thought that it would be problematic for the GP to be owned by the MIC and for its officers and directors to be MIC officers or employees.  Note that in 2012-0450291E5, CRA indicated that the undertaking test could be satisfied by a MIC whose corporate subsidiary owned and managed real property provided that "there are no facts which would suggest that the MIC is involved in the management or development of any real property held by the corporation."  CRA rulings also have stated that a majority of the directors of a subsidiary of a mutual fund trust will not be trustees of the trust (ITTN, No. 34).

It would be quite unusual for REITs and income funds, which carry on non-qualifying activities through subsidiary LPs, to not themselves hold the shares of the general partner.

Neal Armstrong.  Summary of 2013 Ruling 2013-0487911R3 under s. 253.1.