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.
Dear Sirs:
This is in reply to your letter dated October 30, 1990 requesting a technical interpretation of the phrase "its only undertaking was the investing of funds of the corporation" which is found in paragraph 130.1(6)(b) of the Income Tax Act (the "Act").
In order for a corporation to qualify as a mortgage investment corporation ("MIC") for purposes of the Act it must satisfy all of the requirements in paragraphs 130.1(6)(a) to (i) of the Act throughout a taxation year including, pursuant to paragraph 130.1(6)(b) of the Act, that its "only undertaking was the investing of funds of the corporation".
You have indicated that the MIC which is subject to liquidity maintenance standards imposed under the Ontario Loan and Trust Corporations Act and the Loan Companies Act (the "LCA") may wish to conduct an asset/liability management activity in order to protect its net financial position in an unstable interest rate environment. Such activity would be conducted on the MIC's behalf by an arm's length financial institution pursuant to an advisory management services agreement. We note that the wording of section 116 of the LCA clearly contemplates that a MIC may enter into "a contract with any corporation or firm to obtain investment advice or management services therefrom".
Whether any asset/liability management activities of a corporation are consistent with the investing of funds requirement for a MIC is a question of fact which cannot be determined independent of the facts of the particular situation. For example, the specific nature purpose, scope, number and degree of such activities will likely be relevant to such a determination.
It is our general view that where an asset/liability management activity is undertaken solely to protect the investments of the MIC, such activity would not necessarily contravene the requirements of paragraph 130.1(6)(b) of the Act.
While we hope our comments are of assistance to you they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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