Questions & Answers about mortgage investment corporation (MIC) in Canada will clarify and provide you more precise details. Professional real estate investors can take full advantage of this creative way of financing to buy and hold or fix and flip. Since their lending criteria is very liberal and their main security is the value of the subject property. It is lot easier to fund a deal when you are running a business under a corporation.
1. What is a mortgage investment corporation (MIC) in Canada?
A mortgage investment corporation (MIC) in Canada is an investment vehicle governed by the Income Tax Act (Canada) whereby the mortgage investment corporation (MIC) in Canada invests primarily in a pool of mortgages and all of the profits from the mortgage payments are paid out to the mortgage investment corporation (MIC) in Canada shareholders each year.
2. Why invest in a mortgage investment corporation (MIC) in Canada?
Most individuals do not have the means, the time or the expertise to invest in individual mortgages directly. However, investors in a mortgage investment corporation (MIC) in Canada can pool together capital and, combined with the expertise of the mortgage investment corporation (MIC) in Canada management, gain access to investing in mortgages which they otherwise would not have means to. The MIC Management team sources the investment opportunities, negotiates the mortgage terms, manages the mortgages and distributes money to investors. In essence, a MIC investor is party to a lending institution, with its investments backed by mortgages, without having to do any work after the initial investment.
3. What are the advantages of a mortgage investment corporation (MIC) in Canada?
There are several advantages of being a shareholder in a mortgage investment corporation (MIC) in Canada;
(a) All of the mortgage investment corporation (MIC) in Canada profits are paid to its investors
Under the Income Tax Act (Canada), a MIC is required to pay 100% of its annual net income to its shareholders in the form of dividends. This means, after the payment of any over-head, the MIC is not keeping any profits for itself. 100% of the profits are paid to the shareholders.
(b) The mortgage investment corporation (MIC) in Canada is a secured lending vehicle
As a mortgage lender, every loan made by a mortgage investment corporation (MIC) in Canada is secured by a mortgage. As you know, a mortgage is the most secured financing vehicle possible in real estate investing. Thus, in a worst case scenario, the MIC has sufficient collateral and security on all of its investments unlike investing in stocks, hedge funds or other speculative ventures.
(c) Regular, steady and predictable cash flow
It will invest primarily in mortgages in Alberta. Mortgages produce steady and reliable cash flow for the mortgage holder each and every month the mortgage is in place. This cash flow will be paid out to the investor.
(d) The mortgage investment corporation (MIC) in Canada is RSP, RESP and RRIF Eligible
Shares in the mortgage investment corporation (MIC) in Canada are RSP, RESP and RRIF eligible in accordance with the Income Tax Act (Canada). If shares in the MIC are held within a RSP/RESP/RRIF, any dividends paid to the investor are paid tax free allowing an investor the potential to access regular, steady and predictable cash flow on a tax free basis.
(e) The mortgage investment corporation (MIC) in Canada (but not the investor) is regulated to be investor friendly
The mortgage investment corporation (MIC) in Canada is subject to the provisions of the Income Tax Act (Canada) and various Securities Commissions. The mortgage investment corporation (MIC) in Canada financial statements must also be audited each year similar to the way a publicly traded company would be. As such, it has been regulated to be a prudent and investor friendly investment vehicle.
(f) The Management of the mortgage investment corporation (MIC) in Canada are also investors and are equally committed to achieving a high return on investment
The management team has also made a commitment to receive the bulk of their compensation from their investment in the mortgage investment corporation (MIC) in Canada and not as salary. As such, the mortgage investment corporation (MIC) in Canada management team are in substantially the same position as its shareholders and are motivated to operate the mortgage investment corporation (MIC) in Canada in an investor friendly manner. Management will only profit as the shareholders profit.
4. Where will the mortgage investment corporation (MIC) in Canada be investing?
The mortgage investment corporation (MIC) in Canada intention is to invest substantially all, if not all, of its mortgages in the Province of Alberta- the oil-sands capital of the world. By investing in a high growth region such as Alberta, the MIC will be able to invest in mortgages paid by high income individuals and families living in Alberta.
5. What restrictions does the mortgage investment corporation (MIC) in Canada have?
Under the Income Tax Act (Canada), the mortgage investment corporation (MIC) in Canada must adhere to the following rules:
(i) Must have at least 20 shareholders with no one shareholder holding more than 25% of the mortgage investment corporation (MIC) in Canada total capital;
(ii) 50% of the mortgage investment corporation (MIC) in Canada assets must be in residential mortgages and/or cash and insured deposits at a Canada Deposit Insurance Corporation member institution;
(iii) Up to 25% of the mortgage investment corporation (MIC) in Canada assets may be directly in real estate (as opposed to financing real estate through mortgages) but the MIC cannot be a real estate developer or engage in construction;
(iv) Real estate must be in Canada but investors can be outside of Canada (subject to applicable tax laws)
(v) Dividends received outside of a RSP/RRIF are classified as income in the shareholder’s hands.
5. What type of property can the mortgage investment corporation (MIC) in Canada finance?
The mortgage investment corporation (MIC) in Canada is allowed to invest in the following types of investments subject to the limitations set out in the Income Tax Act (Canada):
(i) Residential mortgages including houses and condos
(ii) Project equity loans
(iii) Construction loans
(iv) Interim loans
(v) Land servicing loans
The mortgage investment corporation (MIC) in Canada can lend to non-resident Canadians as long as the property which is subject to the mortgage is located in Canada.
6. Can I become a borrower from the mortgage investment corporation (MIC) in Canada?
If you have purchased shares in the mortgage investment corporation (MIC) in Canada outside of your RSP, you are entitled to become a borrower of the mortgage investment corporation (MIC) in Canada subject to available funds. If you have purchased shares of the mortgage investment corporation (MIC) in Canada inside of your RSP account, the Income Tax Act (Canada) prevents you from becoming a borrower of the mortgage investment corporation (MIC) in Canada.
The Canadian real estate lawyers who specialize in mortgage investment corporation (MIC) in Canada can definitely assist investors in deciding to invest in a mortgage investment corporation (MIC) in Canada on a compliance level, but also can help those looking to start and incorporate a new mortgage investment corporation (MIC) in Canada, as well as advise on maintaining a mortgage investment corporation (MIC) in Canada.
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