A mortgage investment corporation (MIC) is a Canadian corporation defined in section 130.1 of the Income Tax Act. It pays out its income to shareholders and deducts what it pays, so the corporation itself pays little or no tax; the shareholder is taxed instead — and, unusually for a dividend, taxed as if it were interest. This page sets out the qualifying tests, the flow-through mechanism, how distributions are taxed inside and outside a registered plan, and how a MIC compares with a mortgage fund and a REIT.
General information based on the Act as it stands, not tax, legal or investment advice. Confirm the treatment for your own situation with your tax adviser and read the offering memorandum before investing.
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Fail any test on any day and the corporation loses MIC status for the year — and with it the deduction and the plan eligibility.
| Test | What the Act requires | Why it exists |
|---|---|---|
| Canadian corporation | Incorporated and resident in Canada. | The flow-through is a Canadian tax concession. |
| Sole undertaking | Its only business is investing its funds; it may not manage or develop real property. | A MIC is a lender, not a landlord or a builder. |
| Domestic assets | No debt secured on property outside Canada, no shares of non-resident corporations, no foreign real property. | Capital stays in the Canadian mortgage market. |
| Shareholder spread | At least 20 shareholders throughout the year; no shareholder, together with related persons, may hold more than 25% of the issued shares of any class. | A MIC must be a pooled vehicle, not one family's holding company. |
| Share rights | Preferred shareholders share in dividends with common shareholders once their preference is paid. | Stops the preference being used to strip income to one class. |
| Asset mix | At least 50% of the cost amount of all property in residential mortgages, CDIC- or provincially-insured deposits, and cash. | The "residential" in residential lending. |
| Real property cap | Real property held, other than property acquired through foreclosure or default, may not exceed 25% of the cost amount of all property. | Keeps the MIC in lending rather than ownership. |
| Leverage | Where residential mortgages, insured deposits and cash are at least two-thirds of assets, liabilities may not exceed five times the corporation's equity; otherwise three times. | A MIC cannot be levered like a bank. |
Lendmax Capital Mortgage Investment Corp. monitors each of these tests continuously as a portfolio-management rule, not an annual audit finding. The 50% residential test and the 25% shareholder test are the two that constrain day-to-day decisions.
Under s.130.1(1) a MIC deducts taxable dividends paid in the year or within 90 days after year end. A MIC that distributes all of its net income has no taxable income and pays no corporate tax. Anything retained is taxed at the full corporate rate — the small business deduction does not apply to investment income — so MICs distribute.
Under s.130.1(2) a MIC dividend received by a shareholder is deemed to be interest payable on a bond issued by the corporation. It is included in income in full, at the marginal rate, with no dividend tax credit and no gross-up. It appears on a T5 as interest, not as an eligible or non-eligible dividend.
Where a MIC realises a capital gain — on a property taken in enforcement, for instance — it may elect under s.130.1(4) to pay a capital gains dividend, which the shareholder reports as a capital gain (s.130.1(3)). Ordinary lending income never takes this route; it is interest all the way through.
Because the distribution is taxed as interest, the tax cost of holding a MIC in a taxable account is the highest a Canadian investment can carry. Inside a registered plan that cost disappears: distributions are received without annual tax, compound in full, and are taxed on withdrawal (RRSP, RRIF, RESP, RDSP) or never (TFSA, and an FHSA used for a qualifying home purchase).
MIC shares are a qualified investment for those plans under the Income Tax Regulations (Regulation 4900), provided the conditions opposite are met. Lendmax Capital shares are intended to qualify, and are held through registered plan trustees that accept exempt-market securities.
The 10% test is measured across all your registered plans and your non-arm's-length group together, and it is measured continuously — a holding that starts at 8% can cross the line as other shareholders redeem. Ask before adding to a large position.
| Mortgage investment corporation | Mortgage fund (LP or trust) | REIT | |
|---|---|---|---|
| Legal form | Corporation under s.130.1 ITA | Limited partnership or mutual fund trust | Trust holding income-producing real estate |
| What it owns | Mortgages secured on Canadian property; ≥50% residential | Mortgages, often including commercial and construction | Buildings; earns rent, not interest |
| Entity-level tax | None if income is distributed | None — income flows through by allocation | None if it qualifies and distributes |
| Character in your hands | Interest (deemed by s.130.1(2)) | Whatever the fund earned — mostly interest; LP allocations may include losses | Mixed: other income, capital gains, return of capital |
| Registered plan eligibility | Qualified, subject to the connected-debt and 10% rules | Mutual fund trust units generally qualify; LP units generally do not | Listed REIT units qualify |
| Liquidity | Redemption under the OM, subject to notice and limits | Redemption under the fund's terms, often with gates | Daily if listed; private REITs redeem under their terms |
| Regulator of the vehicle | Securities regulator (OM exemption) and, in Ontario, FSRA for the administrator | Securities regulator | Securities regulator; exchange if listed |
The practical difference for most Canadian investors is the registered-plan line. A MIC and a mutual fund trust can sit in a TFSA or RRSP; a limited partnership usually cannot. That, more than yield, decides which vehicle a private-mortgage allocation belongs in.
For shares held in a taxable account: distributions reported as interest, and any capital gains dividend reported separately. Issued by the end of February for the prior calendar year.
Distributions received by an RRSP, RRIF, TFSA, RESP, RDSP or FHSA are not reported by you. The plan trustee reports withdrawals, where withdrawals are taxable.
Every shareholder receives an annual statement of holdings, distributions and reinvestment, alongside the corporation's audited financial statements provided with the offering memorandum.
As interest. Section 130.1(2) deems a dividend from a mortgage investment corporation to be interest on a bond issued by the corporation. It is fully taxable at your marginal rate with no dividend tax credit, and it appears on your T5 as interest. Only a capital gains dividend, which is rare in ordinary lending, is treated differently.
Yes, provided the shares are a qualified investment — MIC shares are, under Regulation 4900 — and two conditions hold: the MIC does not hold any debt of you or a non-arm's-length person, and you and related persons hold less than 10% of any class. Inside a TFSA the interest treatment never applies; inside an RRSP or RRIF it is deferred until withdrawal.
It ceases to be a MIC for that taxation year. It loses the deduction for dividends paid, so it is taxed as an ordinary corporation on its income, and its shares stop being a qualified investment for registered plans, which can expose plan holders to tax. This is why a MIC's manager monitors the shareholder, asset-mix and leverage tests continuously rather than annually.
No. A MIC is a corporation defined in the Income Tax Act with statutory tests and interest-character flow-through. A mortgage fund is usually a limited partnership or a trust with no statutory definition; its income keeps its own character and LP units are generally not eligible for registered plans. Both lend on mortgages; the tax and eligibility differ.
Not on income it distributes. Under section 130.1(1) the corporation deducts taxable dividends paid in the year or within 90 days after year end. Income it retains is taxed at the full corporate rate for investment income, which is why a well-run MIC distributes substantially all of its net income each year.
On the tax side by the Canada Revenue Agency, against section 130.1. On the securities side by the provincial regulator — shares are sold under prospectus exemptions in National Instrument 45-106, through a registered exempt market dealer, under an offering memorandum. In Ontario the mortgage administrator that services the MIC's mortgages is licensed by FSRA; Lendmax Inc. holds Licence 13002.
This page is general information, not tax, legal or investment advice. Securities of Lendmax Capital Mortgage Investment Corp. are offered only under prospectus exemptions in National Instrument 45-106, through a registered exempt market dealer, pursuant to an offering memorandum. Read it, including the risk factors, before investing. Past performance is not indicative of future results.
