A MIC (mortgage investment corporation), is a corporate entity with special status from Canada Revenue Agency (CRA). The corporation is a tax-free, flow-through investment vehicle provided that 100% of the annual income is distributed to the shareholders at least annually. The corporation is also required to ensure that a minimum of 50% of its assets are in residential mortgages and all of the assets in the corporation are Canadian. The MIC is however, open to investors outside of the Canadian market.
Mortgage Investment Corporations (MIC’s) are regulated by section 130.1 of the Income Tax Act (ITA), which allows investors to pool funds through the purchase of shares for the purpose of investing in mortgages. This entity provides an ideal vehicle for investing in RRSP’s, RRIF’s, LIRA’s, LRIF’s, TFSA, and RESP’s. A MIC is also available to investors as an unregistered investment.
Summary of the Income Tax Act, Section 130.1: Salient Rules
1. A Mortgage Investment Corporation must have a minimum of 20 shareholders.
2. A Mortgage Investment Corporation is widely held. No one shareholder or related shareholder group may own more than 25% of the MIC’s total capital.
3. At least 50% of a Mortgage Investment Corporation’s assets must be comprised of residential mortgages, and/or cash and insured deposits at Canada Deposit Insurance Corporation member financial institutions.
4. A Mortgage Investment Corporation 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 Mortgage Investment Corporation is a flow-through investment vehicle, and distributes 100% of its net income to its shareholders.
6. All Mortgage Investment Corporation investments must be in Canada, but a Mortgage Investment Corporation may accept distribution from outside of Canada.
7. A Mortgage Investment Corporation is a tax-exempt corporation.
8. Dividends received with respect to directly held shares, not held within RRSPs, RRIFs or RESPs, are taxed as interest income in the shareholder’s hands. Dividends may be received in the form of cash, or additional shares.
9. Mortgage Investment Corporation shares are qualified RRSP, RRIF and RESP investments.
10. A Mortgage Investment Corporation 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 Mortgage Investment Corporation’s annual financial statements must be audited.
12. A Mortgage Investment Corporation may employ financial leverage by using debt to partially fund assets