Mortgage Investment Corporations (MICs) provide investors with a unique opportunity to invest in the real estate market while handling specific tax implications. In this post, we will explain the technical features of MICs, including entity kinds, asset bases, investment limitations, shareholder requirements, and share classifications.
- Exploring Activity and Investment Scope
The majority of MICs invest in mortgages backed by Property in Canada. These mortgages could be for properties held by individuals, businesses, or even Canadian non-residents. Furthermore, MICs can keep their funds in banks, credit unions, or other institutions insured by the Canada Deposit Insurance Corporation (CDIC). MICs can invest in a variety of real estate assets, but they cannot directly manage or modify these properties. Nonetheless, people might hire specialists to help them manage their finances.
- Minimum & Maximum Investment Levels
The initial cost base of mortgages on residential properties and housing developments must account for at least half of the MIC’s total investment. On the other hand, the initial cost base of deposits and other assets should not exceed 25% of the overall investment. These figures exclude properties acquired through mortgage enforcement processes, such as foreclosures. Compliance with these investment ratios is critical for maintaining the flow-through taxation advantage.
- Managing Liabilities and Net Asset Value
A crucial aspect is the link between a MIC’s total liabilities and its Net Asset Value (NAV). If residential mortgages and bank deposits account for less than two-thirds of the MIC’s property on an initial cost basis, the MIC may borrow up to 75% of the property’s cost.
- Shareholding Limitations and Requirements
MICs must have at least 20 shareholders before the end of their first taxation year and keep this number in succeeding years. To avoid the “modified” specified shareholder categorization, no shareholder should own more than 25% of the issued shares. Family relationships are included, however siblings, parents, in-laws, and adult children are omitted from this classification. Trusts that own shares in the MIC count as four shareholders, but only as one “modified” specified shareholder.
- Understanding Share Types
Share types in a MIC can be classified in a variety of ways as long as they comply with the Ontario Business Corporations Act (OBCA) or the Canada Business Corporations Act. In the case of preferred shares, shareholders are entitled not only to preferred dividends but also to additional dividends equal to those received by common shareholders when the latter receive dividends similar to preferred dividends.
Conclusion
Mortgage Investment Corporations (MICs) include a variety of companies, assets, and laws governing how much to invest, who owns shares, and the sorts of shares. These details can help investors take advantage of what MICs have to offer. They must also follow the rules and pay all applicable taxes. If you are planning to invest in a MIC, choose Versa Platinum. Our mortgage investment specialists can help you make sound investing decisions.
