What is a MIC?
A Mortgage Investment Corporation (MIC) is an investment and lending company created under the Income Tax Act Section 130.1, a federal stature, by allowing public investors access to the real estate market via mortgage lending by investing in a pool of mortgages backed by real property.
By investing in a pool of mortgages, an investor can mitigate the possible risks associated with investing in individual mortgages. Any risk is spread across a pool of mortgages rather than concentrated on an individually held mortgage.
A MIC can borrow from a bank or another lender, employing both the shareholders’ capital and loan proceeds to fund its mortgage portfolio. The portfolio is continuously managed and the flow of newly invested share capital, as well as the proceeds of repaid/discharged mortgages will generally be used to fund new mortgages, sustaining a gainful cycle.
The Manager and Administrator
The manager and administrator in charge of managing the Mortgage Investment Corporation (MIC) is responsible for every aspect of the company’s operations. At Inveloft MIC, these include but not limited to:
- consistent sourcing of suitable mortgage investment opportunities
- underwriting of mortgage applications
- monitoring of status and progress of each investment
- negotiation of applicable interest rates, terms and conditions
- conduct working relations with any mortgage investment participants such as borrowers, brokers and dealers, lawyers, accountants, etc.
- facilitate the completion of the sale of any equity shares of the Corporation, such as Preferred Shares
- compliance of the mortgage portfolio in accordance with applicable legislation
- managing of any claims the Corporation may have with respects to its investments
- enact appropriate measures on behalf of the Corporation to pursue any defaults by borrowers
- provides for the preparation of accounting, management and other financial reports as well as the keeping and maintaining of the books and records of the Corporation
- assemble, advance and administer the mortgages, including collecting payments of principal, interest, and penalties from borrowers in accordance with applicable mortgage terms
- discharge mortgages upon redemption
- ensure Inveloft MIC is registered on title for all the mortgages it holds
Similar to an investment fund, the MIC’s manager is paid a management fee that is typically calculated as a percentage of assets under administration.
Under the Income Tax Act, it is required that 100% of the MIC’s annual net income (as verified by an auditor) is distributed to its shareholders in the form of a dividend. Since all net profit is distributed to shareholders, the MIC itself is not taxed, while only one level of tax is applied to the interest income earned by shareholders. MICs can significantly increase an investor’s yield that regular corporations who are taxed at two levels cannot.
Just like any company, the net income of a MIC is equivalent to its revenues minus its expenses. The revenues are comprised of mortgage interest as well as fee income, while the expenses typically include management fees, professional fees, auditing fees and loan interest if the MIC is employing debt in addition to the share capital.
Key Points of a MIC
Some key points that defines a Mortgage Investment Corporation
- The Mortgage Investment Corporation must be a Canadian corporation
- Only to invest the funds of the corporation and not to manage or develop any real property
- All MIC investments are secured on real property within Canada
- At least 50% of the MIC’s capital is invested in residential mortgages
- Must have at least 20 shareholders
- No one shareholder can hold more than 25% of the shares of any class
- MICs are tax exempt corporations
- 100% of net income must be distributed as dividends to shareholders
- Dividends can be in the form of cash or additional shares
- Annual financial statements must be audited
- Canadian Registered Plans such as RRSP, RESP, TFSA can be qualified to invest MICs