As a full-time Canadian real estate investor, we are required to have a good working knowledge of mortgages, joint ventures, and methods of purchasing properties with creative financing.
The Mortgage Investment Corporation, aka MIC, is a corporation who has been given a special designation by Canada Revenue Agency, as highlighted in the section of 130.1 of the Income Tax Act.
It is a Canadian Corporation which allows investors to invest their RRSP, RESP, RRIF, and money in a pool of mortgages (mostly residential mortgages) where the properties are located within Canada.
The infrastructure of Mortgage Investment Corporation (MIC) is almost similar to a mutual fund.
The Mortgage Investment Corporation (MIC) is a flow-through investment corporation, which means that all revenues generated can be redistributed to all the investors without accruing any income tax. So therefore, Mortgage Investment Corporation (MIC) is not taxed as corporation, which is a bonus for full-time Canadian real estate investors looking for alternative ways to invest.
What are the major characteristics of Mortgage Investment Corporation (MIC) under the section 130.1 of the Income Tax Act?
- Mortgage Investment Corporation (MIC) must have a minimum of 20 shareholders, and not more than 40 investors who are deemed accredited investors
- A shareholder may not hold more than 25% of the Mortgage Investment Corporation’s total capital
- Mortgage Investment Corporation (MIC) must invest at least 50% of its capital in Canadian residential mortgages, and/or Canada depository insurance corporation insured instruments
- All investments of Mortgage Invest Corporation (MIC) must be in Canada
- Mortgage Investment Corporation (MIC) investment are eligible for all registered pension plan, and educational plans, such as RRSPs, RESPs, RRIFs
- Mortgage Investment Corporation (MIC) is allowed to invest up to 25% of its total capital directly in real estate property for income purposes
- Mortgage Investment Corporation is restricted from developing land and engage in any type of construction in Canada
- Mortgage invest Corp is a tax-exempt corporation
- Mortgage Investment Corporation (MIC) is a flow-through investment and distributes all of its net income to all its shareholders
- Dividends received by Mortgage Investment Corporation (MIC) shareholders that have invested cash are taxed as interest in the shareholders end
- There are a few highlights under the Income Tax Act 130.1. For more details, consult the Canada Revenue Agency. In the next article we will be discussing advantages of Mortgage Investment Corporation (MIC).
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Bookmarked your blog. Thank you for sharing. Definitely worth the time away from my classwork.
wow..what a great info..real gem!
This information is GOLD! As always, such information is not to be found in other sources for professional real estate investors! Excellent article, Navtaj! Thank you very much.
Great article. MIC’s are a great alternative for those that feel uneasy investing directly in a mortgage.
I recommend the Real Estate Millionaire Creative Financing Apprenticeship with World Wealth Builders.
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I believe MICs, as mortgage investment vehicles, are no well known enough to most Canadians. From my own experience, people should consider MICs as good RRSP investment choices. When interest rates continue to rise in the foreseeable future, the demand for alternative and creative mortgage financing will rise in Canada. Most institutions have vacated the sub-prime market since 2008. Here lies an opportunity for those who are willing to invest in this market segment. So long as they invest in a MIC that has strong history and management.
Excellent article, thanks for sharing!