What is a Mortgage Investment Corporation?
A mortgage investment corporation (MIC) is an issuer and lending institution which:
MIC shareholders receive income from the MIC mortgage pool. In essence, the debt payments that the borrower makes on their mortgages are flowed through to the shareholders of the MIC. Additional revenue may be generated from various fees paid by the borrower throughout the life of their mortgage.
MICs are flow-through investments, meaning that tax is not paid by the corporation. Rather, income is flowed through to the investors. The criteria for eligibility for MICs, under the Tax Act (Canada), are summarized below:
Must have at least 20 shareholders
No shareholder may hold more than 25% of the MIC’s total capital
At least 50% of a MIC’s assets must be residential mortgages and/or cash and deposits insured by Canada Deposit Insurance Corporation (CDIC)
May invest up to 25% of its assets directly in real estate
Must not develop land or engage in construction
Must not invest in assets or debts (mortgages) related to property outside of Canada
Must distribute 100% of its net income to its shareholders
Distributions paid from a MIC to its shareholders are considered income for tax purposes (T5)
Annual financial statements must be audited by an independent accounting firm
May employ financial leverage by using debt to partially fund assets
Distribution of Mortgage Investment Corporations
Most commonly, MICS are offered to investors under exemptions from prospectus requirements. As with all securities offered in the exempt market, MICs are distributed primarily by way of an offering memorandum (OM) and may only be purchased by certain investors who qualify for exemption (e.g. accredited investor exemption (AI), eligible investors under the OM exemption, family, friends or business associates (FFBA).