Canada: The Mortgage Investment Corporation - An Alternative Lender

Last Updated: March 25 2014
Article by Claude Désy


In 1973, the federal government introduced measures aimed at stimulating investments in residential mortgages by the private sector. One of those was the introduction in the Income Tax Act (ITA) of the "Mortgage Investment Corporation" ("MIC"), a corporation subject to a special tax regime. Generally, it provides its shareholders with monthly distributions from a mortgage portfolio generating stable cash flows on a long-term basis as if they directly owned this asset.

Opportunities to Be Had in Québec?

In provinces other than Québec, there exist several mortgage funds, both listed and unlisted on the Toronto Stock Exchange, many of which are MICs.

Thus, in Québec, there are no MICs with exchange-listed securities, nor probably any unlisted MICs. In the rest of Canada, there are eight MICs listed on one of the stock exchanges of the TMX Group and a significant number of unlisted MICs.

Among those that are not exchange-listed, there is a mortgage fund with a mortgage portfolio of more than one billion dollars, namely Romspen Mortgage Investment Fund.

For a listed MIC, its shares are a permanent source of capital since they usually are not subject to redemption requests by its shareholders. Also, for the investors, these securities are freely tradable on a stock exchange.

Nature of the investment

MICs, whether or not listed, are corporations subject to a special tax regime. The MIC's assets usually include only mortgages generating interest and, occasionally, capital gains. Generally, the income generated by the mortgage portfolio (interest and capital gains) is not taxed in the hands of the MIC but in those of its shareholders. The purpose of such single level of taxation is to place the investors in the same tax position as if they owned the mortgages directly.

What makes the MIC attractive for investors is the stability of its cash flow. A study conducted by Dundee Capital Markets1 reveals the following findings regarding the nature of MICs, mainly those listed on a stock exchange:2

  • On average, 80% of their mortgages are first-ranking.
  • On average, the ratio of the amount of loans to the value of encumbered property is 54%, a large safety cushion in the event that lenders should run into difficulty.
  • Loans are generally short-term, from 18 to 36 months.
  • Where interest rates are floating, they provide a protection against interest rate increases. Furthermore, the short-term nature of the loans is another form of protection against rate fluctuations.
  • The provision for losses is on average 0.4% of the portfolio value. By way of comparison, from 2008 to 2012, the allowance for doubtful accounts of Canadian and American banks stood at 0.9% and 4.37%.
  • Loans generally remain repayable at any time. Therefore, the lender runs a certain risk of prepayment which is mitigated by the short-term nature of the loans.

Typical Structure

(1) Some MICs are controlled by their promoter.
(2) Shares or debentures.
(3) Bank financing is usually used to finance the loans granted which will ultimately be repaid after the closing of subsequent rounds of financing with the public (e.g. warehousing of mortgage loans to be refinanced), as well as the working capital.

A management agreement may set out annual fees, performance bonuses, the sharing of the loan origination fees and service fees. In some cases, the promoter is also a shareholder of the MIC.


The MIC is a conduit for income tax purposes. More precisely, it may deduct from its income dividends that it pays to its shareholders. The corporation may also deduct fifty percent of dividends originating from its capital gains realized during the year. The net result of this tax rule is that the MIC should not have any taxes to pay on its income if it distributes all of its income as dividends to its shareholders.

For a shareholder, dividends received, other than those related to capital gains, are deemed to be interest on bonds and not dividends from a corporation. As for net capital gains realized during the year which the MIC has chosen to distribute to its shareholders, they are deemed to be capital gains realized by the shareholder, only 50% of which are to be included in the computation of their income.

Eligible Investments

The shares of a MIC are investments eligible for a number of deferred income plans, and TFSAs. It is an interesting investment for these plans where they receive dividends (deemed to be interest) before income taxes.

Mortgage Investment Corporation

A corporation is a MIC if, for a taxation year, it meets all of the following conditions throughout the year:

  • Residence and Incorporation – It was incorporated in, and is a resident of, Canada.
  • Restricted Activities – Its sole activity is the investment of its funds and it does not manage or develop real or immovable property. Therefore, it may own real or immovable property, subject to the restrictions described below, but may not manage or carry out activities related to its development.
  • Canadian Property – None of its property consisted of the following:

    • indebtedness secured by real or immovable property situated outside Canada;
    • indebtedness owed by non-residents, except for the debts secured by real or immovable property situated in Canada;
    • shares of a corporation that does not reside in Canada;
    • real or immovable properties located abroad, or a leasehold interest on such properties.
  • Shareholders and Shareholding Threshold – It must have at least 20 shareholders, none of whom, alone or together with related persons, held more than 25% of issued shares of a class of its share capital.

    Note that, to be listed on the TSXV or TSX exchange, a company must have at least 200 or 300 shareholders.
  • Preferred Shareholders' Rights – Preferred shareholders, after preferred dividends have been paid out to them and after the same amount has been paid to the common shareholders, they are entitled to receive the same proportion of any additional distribution of dividends as the common shareholders.

    There is no prescribed condition regarding voting rights. For example, it is possible that the preferred shares may carry the right to vote, but not the common shares.3 See above the restriction on maximum holdings per class of shares.
  • Residential Mortgages, Cash and Deposits – At least 50% of the "cost amount"4 of all of its assets must originate from loans secured by "houses" or property included within a "housing project" within the meaning of the National Housing Act5 from its cash and deposits with a bank or a company, some of which are insured by the Canada Deposit Insurance Corporation or by the Régie de l'assurance-dépôts du Québec, or with a credit union. On certain property, mortgage loans must be on a "house" or a housing project within the meaning of the National Housing Act. It can be a completed building or a building under construction.
  • Maximum Real Property – The cost amount of its real or immovable property, including any leasehold interest on such property (without taking into account those repossessed as a result of a default), must not exceed 25% of the cost amount of all its assets.
  • Leverage – Its "liabilities"6 must not exceed the difference between the cost amount of all of its assets and its liabilities, multiplied by three (three for one), if, at any time of the year, the cost amount of its mortgages on residential property and its deposits described in the paragraph above and its cash represent less than two thirds of the cost amount of all of its assets. In other cases, its liabilities should not exceed the difference between the cost amount of all of its assets and its liabilities multiplied by five (five for one).


1 Dundee Capital Markets, Mortgage Investment Corporations (MICs), Stable Yield From Mortgage Investments, July 4, 2013.

2 Based on a sample of seven exchange-listed MICs as at July 4, 2013 along with Romspen Investment Fund, an unlisted mutual fund trust which has a mortgage portfolio of more than 1 billion dollars.

3 It should be noted that the ITA, for such purposes, defines a common share and a preferred share. What distinguishes one from the other is the right to participate upon a reduction or redemption of shares.

First, a preferred share is a share that is not a common share. A common share is a share the holder of which is not precluded on the reduction or redemption of the capital stock from participating in the assets of the corporation beyond the amount paid up on that share plus a fixed premium and a defined rate of dividend.

4 In general terms, "cost amount" means, for depreciable property or capital property, its non-amortized cost and, in other cases, the cost of the property used for income tax purposes;

5 Section 2 of the National Housing Act defines this word and expression as follows:

"house" means a building or movable structure, or any part thereof, that is intended for human habitation and contains not more than two family housing units, together with any interest in land appurtenant to the building, movable structure or part thereof;

"housing project" means a project consisting of one or more houses, one or more multiple-family dwellings, housing accommodation of the hostel or dormitory type, one or more condominium units or any combination thereof, together with any public space, recreational facilities, commercial space and other buildings appropriate to the project, but does not include a hotel.

6 "Liabilities" means all of the company's debts and all other obligations to pay sums of money that have become due.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.