A Mortgage Investment Corporation (MIC) allows you to invest in the real estate market while reducing the time and risk of investing in individual mortgages. Investors combine their funds by purchasing shares in a MIC, resulting in an alternate fixed-income investment. Mortgage investment corporations in Abbotsford allow investors to invest in a pool of mortgages that is constantly managed, with newly invested share capital and the income from returned and discharged mortgages used to fund new loans.
The MIC’s management is in charge of all aspects of the mortgage pool operations, including sourcing suitable mortgage investments, analysing mortgage applications, and negotiating applicable interest rates, terms, and conditions, as well as instructing investors, managing the mortgage portfolio, and performing general risk management.
Important Rules of a MIC
- A Mortgage Investment Corporation must have a minimum of 20 stockholders.
- A MIC is generally broadly held. No shareholder may own more than 25% of the MIC’s total capital.
- A minimum of 50% of a MIC’s assets must be residential mortgages and/or cash and insured deposits held by Canada Deposit Insurance Corporation member financial institutions.
- A MIC can invest up to 25% of its assets directly in real estate, but it cannot develop land or build structures. This real estate holdings ceiling excludes real estate acquired as a result of a mortgage default.
- A MIC is a flow-through investment entity that returns all of its net profits to its owners.
- All MIC investments must be made in Canada, but the MIC may accept investment cash from outside of Canada.
- A MIC is a tax-exempt corporation.
- Dividends earned on directly owned shares, not kept in RRSPs or RRIFs, are taxed as interest income in the shareholder’s hands. Dividends might be received in the form of cash or more shares.
- MIC shares are qualifying RRSP and RRIF investments.
- A MIC may pay out income dividends, often from mortgage interest and property assets, as well as capital gain dividends, usually from the sale of its real estate investments.
- An MIC’s annual financial statements must be audited.
- An MIC may use loans to partially fund mortgage properties.
The Income Tax Act requires that a MIC transfer 100% of its yearly net income, as verified by external audit, to its shareholders in the form of dividends. This dividend is taxed as interest income because it primarily represents the flow-through of interest received on a mortgage portfolio. Because a MIC distributes all of its net profit to its owners each year, it is not taxed.
This is a huge advantage for MIC shareholders, as it increases their dividend by avoiding the two levels of taxation that conventional mortgage firms require. An MIC’s net income is equal to its revenues minus its expenses. Mortgage interest and fee income are the primary sources of revenue for MICs.
Want to know more about MICs? Talk to our mortgage investment consultants at Versa Platinum. We are one of the trusted MICs in Abbotsford assisting potential investors in becoming a mortgage investor with an initial investment of just $10,000. Contact us to get started.
