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.
Mortgage Investment Corporation
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, 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
- 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
- All investment are eligible for all registered pension plan, and educational plans, such as RRSPs, RESPs, RRIFs
- MIC is allowed to invest up to 25% of its total capital directly in real estate property for income purposes
- Restricted from developing land and engage in any type of construction in Canada
- Mortgage invest Corp is a tax-exempt 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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