24(1)
913034
A. Seidel
(613) 957-3496
Attention: 19(1)January 14, 1992
Dear Sirs:
This is in reply to your letter dated September 5, 1991 with respect to whether an investment in a mortgage fund type of mutual fund corporation by a mortgage investment corporation ("MIC") would satisfy the requirements of paragraph 130.1(6)(f) of the Income Tax Act (the "Act").
Paragraph 130.1(6)(f) of the Act requires that at least 50% of the cost amount of all of the property held by a MIC must consist of debts owing to the corporation that were secured on residential property, deposits standing to the credit of the MIC in the records of a bank or credit union and money.
In the situation where a MIC invests in the shares of a mortgage fund type of mutual fund corporation, it is our view that such an investment would not be a "debt owing to the MIC that is secured on residential property" for the purposes of subparagraph 130.1(6)(f)(i) of the Act as there is neither a debt owing to the MIC nor is the MIC able to look to the underlying residential properties to recover its investment. It appears to us that this type of an investment differs from an investment in a mortgage-backed security where the investor has an undivided interest in a pool of mortgages which are secured on residential property. Whether or not a particular investment in a mortgage-backed security qualifies for purposes of subparagraph 130.1(6)(f)(i) would depend, inter alia, on whether the underlying debts of the mortgage-backed security are owing to the investor.
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.
Yours truly, for Director Financial Industries Division Rulings Directorate.
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