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 Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions