Want to become a mortgage investor? If you’re thinking about investing in Mortgage Investment Corporations (MICs), it’s important to understand the tax regulations that come along. These regulations ensure that you follow the law and don’t get penalized in any way.
In this blog, we will break down MIC taxes and other complex tax issues to help you make better investment decisions.
- Tax-Flow Through & Transfer
One of the most notable elements of MIC taxes is the transfer of profits to shareholders. It means that the MIC is exempt from income tax as long as its earnings are given to shareholders, who subsequently report and pay taxes on the dividends received. This feature is especially advantageous for investors who purchased MIC shares through self-directed registered retirement savings plans (RRSPs) or registered retirement income funds (RRIFs).
- Tax-free Dividends in TFSA
TFSAs provide investors with the unique benefit of tax-free dividends when withdrawn. Dividends generated from MICs are often taxable, but those taken from a TFSA are completely tax-free. It emphasizes the appeal of MICs as an investment opportunity, as they allow investors to accumulate earnings without being taxed.
- Income Inclusion and Considerations
While dividends from MICs are normally considered interest income, they are not eligible for gross-up or dividend tax credits. Income Tax Act (ITA) requires shareholders to include these dividends in their total income. This means that investors must account for the full inclusion of these dividends when computing their taxable income.
- Audited Financial Statements
All mortgage investment corporations ensure that they provide comprehensive financial reports that are reviewed by auditors. However, it lets investors about how well the company is doing. This way, they can determine whether it is safe to invest. Though scams in MICs are uncommon, these tight requirements make informed investors feel safer.
- MIC Compliance and Tax Implications
MICs must strictly adhere to the ITA’s rules. This provides them with special tax benefits. They may lose these tax breaks if they do not follow the guidelines. The MIC would then have to pay taxes before paying out money to its owners. This would result in significantly lesser returns.
- Borrowing Limits and Financial Transparency
The audited financial statements shed light on MICs’ borrowing habits. These disclosures disclose how much a MIC has borrowed, providing insight into its leverage and risk exposure. Borrowing caps are normally outlined in the MIC’s prospectus, which is an important element for investors when evaluating the MIC’s financial soundness.
Conclusion
Knowing the tax requirements for investing in a Mortgage Investment Corporation is critical for getting the most out of your money while being within the law. If you are concerned about taxes related to MIC investment or mortgage pool, an expert investment consultant can help you out. At Versa Platinum, we are your trusted mortgage investment company in Abbotsford, assisting potential investors in getting high ROI and consistent quarterly dividends. For more details about mortgage investment in Abbotsford, contact us today.
