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.

MICS Today

A Mortgage Investment Corporation (MIC) is an investment and lending corporation designed specifically for mortgage lending in Canada. Investors pool their money by buying shares in a MIC and the MIC lends those funds to borrowers who provide their real estate as security.

Governed by Section 130.1 of the Income Tax Act, MICs pay no corporate tax and act as flow-through entities. They must pay out all their taxable income in the form of dividends.

For tax purposes, MIC’s dividends are treated as interest income in the hands of the shareholders. Shares of a MIC are eligible investments under the Income Tax Act for RRSPs, RRIFs, DPSPs, or RESPs and TFSAs.

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

MIC Management

The management of a MIC is responsible for all aspects of the MIC’s operations, including the sourcing of suitable mortgage investments, the analysis of mortgage applications, and the negotiation of applicable interest rates, terms and conditions, instruction of solicitors, mortgage portfolio and general administration. Like an investment fund, the manager of a MIC is paid a management fee, typically calculated as a percentage of assets under administration. EquityLine’s 1% management fee is among the lowest in the industry.