In Canada, a Mortgage Investment Corporation (MIC) is both a lending and investing company that specializes in mortgage lending. Depending on the MIC, a pool of secured mortgages may be either residential or commercial. Investors can receive returns on their investment in MIC shares on a monthly, quarterly, or annual basis.
MICs and Real Estate Investment Trusts (REITs) are comparable in a way that they let investors make real estate investments without actually owning any property. But in contrast to REITs, MICs focus more of their investments on mortgages than on actual real estate.
MICs are usually constituted as private corporations and are subject to both provincial securities laws and the federal Income Tax Act. They have to register and abide by stringent rules for reporting, governance, and disclosure.
The Income Tax Act governs the MIC even though it was established under the Residential Mortgage Financing Act. The guidelines for MICs are summarized as follows:
- A Canadian corporation is required to be a MIC.
- There have to be twenty stockholders or more in a Mortgage Investment Corporation.
- In general, MICs are widely attended. No shareholder may own more than 25 percent of the total capital of the MIC.
- Residential mortgages, cash, and insured deposits held by financial institutions that are members of the Canada Deposit Insurance Corporation must make up at least half of MICs assets.
- A MIC is not permitted to develop land or carry out construction, although it is permitted to directly invest up to 25% of its assets in real estate.
- A MIC is a flow-through investment entity that pays its shareholders all of its net income.
- A MIC may receive funding from outside of Canada, but all investments must be made in Canada.
- Tax-exempt corporations are known as MICs.
- In the hands of the shareholder, dividends earned with regard to directly owned shares that are not kept under RRSPs or RRIFs are taxed as interest income. Dividends could come in the form of extra shares or cash.
- Qualified RRSP and RRIF investments are MIC shares.
- A MIC may pay out capital gain dividends, usually from the sale of its real estate holdings, as well as income dividends, usually from interest on mortgages and income from property holdings.
- The yearly financial statements of a MIC need to be audited.
- A MIC may use debt to partially fund assets in order to create financial leverage.
Mortgage Investment Corporations are required by the Income Tax Act to pay dividends to their shareholders in the amount of 100% of their income. MICs are not subject to taxes as a result of this distribution requirement. Following that, investors must pay taxes on their interest income. However, investors can delay paying taxes until they eventually take their money by buying MIC shares through a self-directed registered retirement income fund or a self-directed registered retirement savings plan.
Versa Platinum is your local Mortgage Investment Corporation (MIC) in Abbotsford that is proudly assisting mortgage investors in generating consistent returns and quarterly dividends on their mortgage investment. To become a mortgage investor, give us a call today.
