W.C. Harding (613) 957-8953
19(1)
January 30, 1990
Dear Sirs:
Re: Mortgage Investment Corporations (MICs)
This is in reply to your letter of January 2, 1990 wherein you asked us to reply to several questions posed with respect to various activities of an MIC.
We are unable to definitively reply to all of your queries as they, to various extents, relate to proposed or contemplated actions which must be the subject matter of an advance income-tax ruling request submitted in the manner set out in Information Circular 70-6R, a copy of which is enclosed. We nevertheless offer the following general replies to your questions in the order asked.
1. In our opinion money means legal tender and accordingly includes only currency and not Government of Canada Treasury Bills.
2. Subparagraph 130.1(6)(f)(ii) of the Income Tax Act (the "Act") specifically refers to "deposits standing to the corporation's credit" and does not apply to any other form of "instrument". A non-CDIC or QDIB insured deposit standing to the corporation's credit in the records of a bank or other corporation will be included under paragraph 130.1(6)(f) of the Act if any deposits of that entity are insured under one of those programs. The term "deposits" generally has the meaning provided in the Canada Deposit Insurance Corporation Act, the Bank Act or the Quebec Savings Bank Act, whichever is applicable in the circumstances.
3. Paragraph 4900(1)(c) of the Income Tax Regulations ("Regulations") provides that shares of a mortgage investment corporation (MIC) are qualified investments for an RRSP or RRIF provided the MIC meets certain conditions specified in the regulation. Paragraph 4900(1)(e) of the Regulations also provides for the eligibility of warrants if they are listed on the Toronto Futures Exchange or a prescribed exchange and they provide the owner with the right to acquire a share which would otherwise be a qualified investment. Accordingly, a warrant to acquire an MIC share will only be a qualified property if it is so listed and the MIC share otherwise qualifies.
An unlisted warrant sold with a qualified MIC share as a unit is not considered to be a share of the MIC. It is the Department's pinion that such a unit would be qualified to the extent of the hare acquired and a non-qualified investment to the extent of the warrant, based upon the value of the two components at the time of their acquisitions The Department, however, has taken the position that if a non-qualified warrant acquired as part of a unit where the share component is a qualified investment, is disposed of shortly after acquisition but in the same calendar year and there is no significant difference in the fair market value of the warrant on acquisition from its proceeds of disposition, the provisions of subsection 146(6) and (10) of the Act will not be applied to the transactions.
4. Please refer to 3. above.
5. A bond, debenture note or similar obligation of an MIC will be a qualified investment if it meets the requirements of Regulation 4900(i).
6. In the event that the shares of a MIC are listed on a prescribed stock exchange in Canada, a bond, debenture, note or similar obligation of the MIC will, in addition to qualifying under Regulation 4900(1)(i), qualify under subparagraph 146(1)(g)(ii) of the Act in respect of RRSPs and under subparagraph 146.3(1)(d)(ii) in respect of RRIFs.
7. Properties such as shares and warrants of a corporation acquired under an RRSP must be held by a trust as described in clause 146(1)(j)(ii)(A) of the Act. A plan may or may not be self-administered.
It is a question of law, other than the Income Tax Act, whether or not any particular corporation is authorized to act as a trustee. As stated in clause 146(1)(j)(ii)(A) of the Act, if a corporation is so authorized it may issue trusted RRSPs.
8. Please refer to our comments in 3. above.
The above comments reflect expressions of opinion only and as stated in paragraph 24 of Information Circular 70-6R, are not binding on the Department. We trust, however, that they will be of assistance to you.
Yours truly,
Wayne Douglas for Director Financial Industries Division Rulings Directorate