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What a Mortgage Investment
Corporation actually is.

A mortgage investment corporation (MIC) is a Canadian corporation whose only business is investing in mortgages, and which pays out its taxable income to shareholders instead of paying tax on it. The structure is defined in subsection 130.1(6) of the Income Tax Act, and a corporation only qualifies if it meets every condition in it.

Published by Lendmax Capital MIC|Updated About our team

The qualifying tests

What the statute requires.

TestWhat the Act requires
CanadianThe corporation must be a Canadian corporation.
Sole undertakingIts only undertaking is investing its funds. It may not manage or develop real property.
Domestic assetsNo debts secured on property outside Canada, no shares of non-resident corporations, no foreign real property.
ShareholdersAt no time fewer than 20 shareholders, and no shareholder — with related persons — may hold more than 25% of the issued shares of any class.
Share rightsPreferred shareholders participate with common shareholders in further dividends after their preference is paid.
Asset mixAt least 50% of the cost amount of all property must be residential mortgages, insured deposits and cash.
Real property capReal property held (excluding property taken through foreclosure) may not exceed 25% of the cost amount of all property.
LeverageLiabilities are capped relative to equity — a stricter multiple applies where the 50% residential test is not comfortably met.

What "flow-through" means

A MIC deducts the taxable dividends it pays during the year, or within 90 days after year end, from its own income. Distribute essentially all taxable income and the corporation pays little or no tax on it — the tax is borne by the shareholder instead.

Those dividends are then deemed, under subsection 130.1(2), to be received by you as interest on a bond. Practical effect: fully taxable at your marginal rate, no dividend tax credit, reported on a T5 as interest. Capital gains dividends can be designated separately where the corporation realises capital gains.

Registered plans

MIC shares are intended to be a qualified investment for RRSPs, RRIFs, TFSAs, RESPs, RDSPs and FHSAs under the Income Tax Regulations. Two conditions matter and are easy to miss:

  • The MIC must not hold any debt of a person connected with your plan — broadly, you or someone not at arm's length from you
  • If you and non-arm's-length persons hold 10% or more of any class of shares, the shares become a prohibited investment for your plan, which carries a penalty tax

This is general information, not tax advice, and it is based on current law. Confirm eligibility for your own plan with your tax adviser before subscribing.

MIC questions

How is a mortgage investment corporation taxed?

The MIC deducts the dividends it pays out, so it pays little or no corporate tax; in your hands those dividends are deemed to be interest under section 130.1(2) — fully taxable, no dividend tax credit, reported on a T5. Inside an RRSP or TFSA that treatment does not apply. The MIC tax rules page sets out the tests, the flow-through and the registered-plan conditions in full.

Is a MIC the same as a mortgage fund?

No. A MIC is a corporation defined by statute, with the section 130.1 tests and interest-character flow-through. A mortgage fund is usually a limited partnership or trust with no statutory definition; its income keeps its own character, and limited partnership units are generally not eligible for registered plans. Both lend on mortgages — the tax and eligibility differ.

Is a MIC the same as a REIT?

No. A REIT owns income-producing real estate and earns rent; a MIC lends against real estate and earns interest. A publicly traded REIT is liquid and its unit price moves daily with the market. A MIC is private, priced on its book rather than by an exchange, and pays income that is taxed as interest rather than as a mix of income, capital gains and return of capital.

Is my capital guaranteed?

No. Nothing about a MIC investment is guaranteed. Shares are not deposits, they are not insured by the Canada Deposit Insurance Corporation or any other insurer, and they are not guaranteed by any government or agency. Distributions can be reduced or suspended, the value of the shares can fall, and the entire investment may be lost.

How do I get my money out?

Through redemption under the corporation's articles and offering memorandum — typically subject to a notice period, possible hold periods, and the board's ability to defer or suspend redemptions in order to protect the remaining shareholders. There is no secondary market. Treat this as an illiquid holding.

Who checks the numbers?

The corporation is audited annually by a licensed public accountant, and the audited financial statements are provided with the offering memorandum. As a licensed mortgage administrator, Lendmax Inc. also files audited statements, an internal controls report and a trust account report with FSRA each year.

Is a mortgage investment corporation in Ontario different from one in BC or Alberta?

The tax definition is federal — section 130.1 applies to a mortgage investment corporation in Ontario, British Columbia and Alberta alike. What changes by province is the securities regulator that oversees how the shares are sold (the OSC, BCSC or ASC), and the licence the administrator holds: in Ontario that is a FSRA mortgage administrator licence, which Lendmax Inc. holds as Licence 13002.

Can a MIC lend outside the province it is based in?

Yes. A MIC based in Ontario can hold mortgages on property in British Columbia and Alberta, provided the residential-property and Canadian-property tests in section 130.1 are still met across the whole book. Lendmax lends in all three provinces from one balance sheet.

Understand the structure. Then look at the book.

Past performanceExisting investor? Your accountDirect vs. MIC

Sources and further reading

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