I believe what you're talking about is whether it would be appropriate.... Clause 85 deals with an exclusion. Under the proposed rules, they would not apply for what's called an “excluded property”. I believe the suggestion put forward last evening was that investments in mortgage investment corporations would be excluded properties for purposes of the RRSP rules.
In terms of the RRSP rules in general, what's being proposed in the budget is a series of measures to get at avoidance in the context of RRSPs. They piggyback on the rules for tax-free savings accounts, which were implemented previously and have been relatively well accepted. There is a 100% tax and it's on an “advantage”. One of the advantages that may accrue in respect of an RRSP is income arising from what's called a “prohibited investment”.
A prohibited investment is an investment held by an RRSP, for example, where that investment is shares of a corporation in which the holder of the RRSP has a significant interest. A “significant interest” is an interest of the person and non-arm's length persons in excess of 10%.
Now, that 10% rule applies to all corporations, all trusts, and all partnerships. The interesting aspect, at least from my perspective, is that in the legislation with respect to the rules in sections 207.01 through 207.05, there is no specific reference to mortgage investment corporations. Mortgage investment corporations are simply a type of corporation that is caught up in these rules. These rules apply equally to other privately held corporations. They also apply to publicly listed corporations. As I said, they apply to trusts and partnerships. So in that sense, the rule has been drafted in sort of a broad, level-playing-field type of manner.
Mortgage investment corporations seem to be an investment vehicle that has been used by a particular segment of the taxpayer population. Mortgage investment corporations are a special type of corporation that were set up in the 1970s to help increase funding of private mortgages for residential housing purposes. The rules around mortgage investment corporations made them suitable for certain types of investments in terms of taxpayers taking advantage of planning opportunities.
Now, mortgage investment corporations are qualified investments for RRSPs and would continue to remain qualified investments for RRSPs. It's only where they fall offside this significant interest or 10% rule.... So I guess the point in terms of how this measure operates is that it's not specifically with respect to mortgage investment corporations: the significant interest rules apply with respect to all corporations.
Is that helpful to the committee?