A Mortgage Investment Corporation (MIC) is an investment fund designed specifically for residential mortgage lending in Canada. Owning shares in a MIC enables investors to participate in the income from a diversified and secured pool of mortgages. MIC shares are eligible investments under the Income Tax Act for registered accounts.
The rules for MICs, which are flow-through instruments (meaning that tax is not paid by the company, only its investors), are found in the Tax Act, and include the following:
- A MIC’s annual financial statements must be audited.
- A MIC is a flow-through investment vehicle and distributes 100% of its net income to its shareholders.
- 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.
- Dividends received with respect to directly held shares, not held within RRSPs or RRIFs, are taxed as interest income in the shareholder’s hands. Dividends may be received in the form of cash, or additional shares.
There are hundreds of MICs across the country. They differ mainly in the type of mortgages they write (first or second) and the type of applicants they will approve (apartment building owners vs. end users, good credit vs. bad credit, etc.). Many Canadian MICs have operated for over 10 years with total default costs of less than 1% per year.
Westcourt has identified four MICs that have operated with excellent records over many years. They generally specialize in certain geographic areas, working with the same mortgage brokers and real estate agents over and over again, becoming familiar with the regions -- even the neighbourhoods -- within which they write their mortgages.
Westcourt-recommended MICs historically have provided annual distributions of between 7.5-9.5% per annum, and pay distributions monthly or quarterly. The MICs currently recommended by Westcourt are: