History of MICS in Canada
In 1973 the government of Canada introduced legislation designed to address a chronic shortfall in mortgage funding across the country. Because of rapid population growth and other factors, there was an annual projected gap, at that time, of $2.3 billion between funds needed and funds available for residential and commercial real estate mortgages nation wide.
The solution the government introduced in 1973 created a new class of financial entity called a Mortgage Investment Corporation, or as it became commonly known, a MIC.
MICs were designed to meet two key objectives.
1. ALTERNATIVE TO TRADITIONAL MORTGAGES:
Provide a loan facility mechanism to qualified individuals and organizations that offered terms and conditions that were less rigid than those imposed by financial institutions.
2. REGULATED PRIVATE INVESTMENT IN MORTGAGES:
Provide private investors with a safe mechanism for investment in mortgage loans of between 6 and 36 months at rates that were considerably higher than banks and other senior institutions.
MIC Legal Structure
The Income Tax Act sets out multiple requirements for a MIC. Those requirements include the following:
- A MIC 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 insured deposits at Canada Deposit Insurance Corporation member financial institutions
- All MIC investments must be in Canada, but a MIC may accept investments outside of Canada
- A MIC may invest up to 25% of its assets directly in real estate but may not develop land or engage in construction
- A MIC is a flow-through investment vehicle and distributes 100% of its net income to its shareholders
- Dividends received with respect to directly held shares, not held within RRSPs or RRIFs, are taxed as interest income in the shareholder’s hands
- A MIC’s annual financial statements must be audited
- A MIC may employ financial leverage by using debt to partially fund assets