File No. 5-910835
Dear Sirs:
This is a reply to your letter dated March 19, 1991 concerning taxation under Part XIII of the Income Tax Act ("Act"). You have requested confirmation that taxable dividends paid by a mortgage investment corporation ("MIC") to its non-resident shareholders will not be subject to tax under Part XIII of the Act.
We cannot provide you with such a confirmation since we are of the opinion that the taxable dividends paid by a MIC to its non-resident shareholders will be subject to tax under Part XIII of the Act. The taxable dividends are deemed pursuant to subsection 130.1(2) of the Act to have been received by the shareholders as interest payable on a bond issued by the corporation after 1971 and paragraph 214(3)(e) of the Act, for purposes of Part XIII of the Act, deems such amount to have been paid to non-resident shareholders as interest on a bond issued after 1971. Consequently, the deemed interest amount would be subject to tax under paragraph 212(1)(b) of the Act unless it comes within the exemptions provided for within that paragraph. We fail to see that any such exemption would apply to the deemed interest amount including the one described in subparagraph 212(1)(b)(vii) of the Act which you referred to in your letter.
It is our view that notwithstanding the fact that the amount received by the non-resident shareholder is deemed to have been paid as interest on a bond issued after 1971 the fact remains that the share held by the non-resident shareholder would not be evidence of indebtedness of an obligation issued by the corporation.
While we trust that our comments are of assistance to you, they do not constitute an advance income tax ruling and are, therefore, not binding upon the Department in respect of a particular situation.
Yours truly,
For DirectorFinancial Institutions SectionRulings Directorate