Mortgage Investment Corporation
What is a MIC?
How does CRA treat a MIC investment?
What tax advantages does a MIC offer?
Are MIC shares RRSP eligible?
Does a MIC investment reduce any investment risk?
How can I monitor my MIC investment with Crossroads-DMD Mortgage Investment Corporation?
What is a MIC?
A "Mortgage Investment Corporation" is a corporation entitled to special non-taxable status under Section 130.1 of the Income Tax Act, a federal statute. Designed specifically for mortgage lending in Canada, investors pool their money by buying shares in the MIC company. MICs may also borrow from a bank or other lender, using both the shareholders’ capital and loan proceeds to fund a mortgage portfolio.
How does CRA treat a MIC investment?
Under Section 130.1 of the Income Tax Act, there are several requirements. These include:
- A MIC is a tax-exempt corporation.
- A MIC must have at least 20 shareholders with no one shareholder holding more than 25% of the MIC's total capital.
- At a minimum, 50% of a MIC’s assets must be comprised of residential mortgages, and/or cash and insured deposits at Canada Deposit Insurance Corporation member financial institutions.
- While a MIC may accept investment capital from outside of Canada, all MIC investments must be made in Canada.
- A flow-through investment vehicle, a MIC distributes 100% of its net income to its shareholders.
- MIC shares not held within RRSPs or RRIFs, are taxed as interest income in the shareholder’s hands.
What tax advantages does a MIC offer?
The MIC is allowed to deduct from its income all amounts paid to its shareholders as taxable dividends. Consequently, a MIC is a conduit and as such, is non-taxable.
Are MIC shares RRSP eligible?
The shares of the MIC are an eligible investment for deferred investment plans, including RRSPs and RPPs. A MIC is particularly attractive for registered plans as a MIC does not pay any tax when its income is flowed out as dividends while plans do not pay any tax when they receive dividends. Beneficiaries only pay tax when they collapse their plans and actually receive the funds therein. Canadian tax rules prohibit Personal Registered Plans from borrowing funds, a MIC however, can borrow funds. Therefore plans can enhance their income capability by leveraging their available capital.
Does a MIC investment reduce any investment risk?
Through investing in a MIC which has a large pool of capital, plan holders are secured by a number of mortgages, which reduces the risk. However, as with any investment in residential mortgages there are risk factors. Many of these factors can be minimized by strict lending parameters based on the underlying value of the security.
How can I monitor my MIC investment with Crossroads-DMD Mortgage Investment Corporation?
All Crossroads-DMD MIC shareholders receive a copy of the annual audited statements. Investors also receive a personal account dividend calculation statement. For tax purposes, shareholders holding their shares outside of a registered plan also received a T5. They are then able to calculate their annual taxable interest dividend. For investments held within a registered plan, activity statements are also provided by the registered plan trustee.
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