What Is A MIC?

WHAT IS A MIC?

• A MIC is a Mortgage Investment Corporation which is designed specifically for residential mortgage lending in Canada.
• It is owned by the investors by way of owning shares in the MIC.
• Investors pool their money in order to invest in a group of mortgages rather than just investing in one and thereby reducing risk to the investors. They are investing in a diversified and secured pool of primarily residential mortgages.
• Shares of a MIC are qualified investments under the Income Tax Act for RRSP’s, RRIF’s, TFSA’s and RESP’s.
• The management company is responsible for administrating the MIC for the investors. They source suitable mortgages to invest in as well as the general administration of the company.
• Mortgage Investment Corporations are generally provincially registered and licensed.
•  The management company receives a fee for the administration of the MIC.
•  As mortgages are repaid, discharged and new capital is received these funds are used to invest in new mortgages.

•  The MIC’s annual net income is 100% distributed to investors according to their proportional interest in the company.
•  The distributions are in the form of dividends which are treated as interest income for tax purposes.
•  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.
• A MIC’s annual financial statements must be audited.

A MIC is governed by the Income Tax Act, Section 130.1
These are the minimum requirements.

Income Tax Act, Section 130.1: Salient Rules

1. A Mortgage Investment Corporation must have at least 20 shareholders.
2. A MIC is generally widely held. No shareholder may hold more than 25% of the MIC's total capital.
3. 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.
4. 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.
5. A MIC is a flow-through investment vehicle, and distributes 100% of its net income to its shareholders.
6. All MIC investments must be in Canada, but a MIC may accept investment capital from outside of Canada.
7. A MIC is a tax-exempt corporation.
8. 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.
9. MIC shares are qualified RRSP and RRIF investments.
10. 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.
11. A MIC’s annual financial statements must be audited.
12.  A MIC may employ financial leverage by using debt to partially fund assets.