WHAT IS A MORTGAGE INVESTMENT CORPORATION (MIC)?
A mortgage investment corporation or MIC is an investment and lending company designed specifically for mortgage lending (primarily residential with some commercial and farm mortgage lending) in Canada. Owning shares in a Mortgage Investment Corporation enables you to invest in a company which manages a diversified and secured pool of mortgages. Shares of a MIC are qualified investments under the Income Tax Act (Canada) for RRSP, TFSA, RRIF, RESP, LIRA, RLIF, RLSP, RDSP and DPSP Eligible.
MIC's are organized for investing in pools of mortgages. Profits generated by MICs are distributed to its shareholders according to their proportional interest. The mortgages are secured on real property, often in conjunction with other forms of security, such as personal and corporate guarantees, general security agreements and assignments of material contracts, such as insurance policies, prepared by lawyers for the MIC.
Mortgages may offer higher rates of return and relatively lower risk than alternative investment options by virtue of the inherent value of real estate security.
All investments and lending documents are prepared by lawyers or notaries for the MIC.
Income Tax Act, Section 130.1:
- A Mortgage Investment Corporation must have at least 20 shareholders.
- A MIC is generally widely held. No shareholder may hold more than 25% of the MIC’s total capital.
- At least 50% of a MIC’s assets must be comprised of residential mortgages, and/or cash and insured deposits at Canada Deposit Insurance Corporation member financial institutions.
- A MIC may invest up to 25% of its assets directly in real estate, but may not develop land or engage in construction. This ceiling on real estate holdings does not include real estate acquired as a result of mortgage default.
- A MIC is a flow-through investment vehicle, and distributes 100% of its net income to its shareholders.
- All MIC investments must be in Canada, but a MIC may accept investment capital from outside of Canada.
- A MIC is a tax-exempt corporation.
- Dividends received with respect to directly held shares, not held within RRSPs or RRIFs, are taxed as interest income in the shareholder’s hands. Dividends may be received in the form of cash, or _additional shares.
- MIC shares are qualified RRSP and RRIF investments.
- A MIC may distribute income dividends, typically interest from mortgages and revenue from property holdings, as well as capital gain dividends, typically from the disposition of its real estate investments.
- A MIC’s annual financial statements must be audited.
- A MIC may employ financial leverage by using debt to partially fund assets.
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