1 October 1990 Income Tax Severed Letter 9005075 F - Mortgage Investment Corporations

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.

19(1)

October 1, 1990

Dear Sirs:

Re:  Mortgage Investment Corporations ("MICs")

We are writing in response to your letter of April 17, 1990 in which you asked a number of questions related to MICs. The term MIC is defined in subsection 130.1(6) of the Income Tax Act (Canada) (the "Act"). The example in your letter involved a MIC investing in a joint venture in real property with an individual and undertaking certain related expenditures.

The facts in your letter appear to relate to actual proposed transactions. Therefore no specific confirmation can be provided in this response. Revenue Canada, Taxation ("RCT") provides advance income tax rulings on the income tax consequences of proposed transactions where the issues involved are primarily questions of interpretation of the Act. The issues raised in your letter include questions of fact on which RCT would be unable to provide either a specific opinion or an advance income tax ruling. Nevertheless, we have set out below our general comments on the major interpretation issues raised in your letter.

Paragraph 130.1(6)(a) imposes a restriction on a MIC's investment in real property, other than real property acquired by foreclosure or default. The restriction is in terms of the cost amount of such property. Cost amount is defined in subsection 248(1) of the Act for specific types of property. In particular, paragraph (a) of the definition of cost amount provides that:

     where the property was depreciable property of the taxpayer of a prescribed class, that proportion of the undepreciated capital cost to him of property of that class at that time that the capital cost to him of the property is of the capital cost to him of all property of that class.

Paragraph (b) provides that:

     where the property was capital property (other than depreciable property) of the taxpayer, its adjusted cost base to him at that time.

The test in paragraph 130.1(6)(b) involves a question of fact i.e., whether it can be said that throughout a year a corporation's only undertaking was the investing of funds and that the corporation did not manage or develop any real property. In our view, it would be difficult to conclude that a corporation which invested in a real property joint venture was not involved in managing or developing the real property.

The provision of services by a third party would not, in our view, be significant in the determination of whether a corporation which is a joint venture participant managed any real property.

The above opinions are provided in accordance with the practice described in paragraph 24 of Information Circular 70-6R, a copy of which is enclosed.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate