Mortgage investment corporations (“MICs”) are created under section 130.1 of the Income Tax Act which sets out the rules that apply to mortgage investment corporations and their shareholders. MICs primarily invest in mortgages including commercial, industrial, developmental and residential mortgages and are designed to flow through income from those investments onto investors without being taxed at the corporate level.

Tax Treatment

A MIC must distribute 100% of its net annual income before taxes to shareholders in the form of dividends. MICs are entitled to deduct from its income all taxable dividends, other than capital gains dividends, paid by the MIC during the year or within 90 days of the year end and 50% of all capital gains dividends during the period commencing 90 days after the start of the year and ending 90 days after the end of the year. A MIC is deemed to be a public corporation for the purposes of the Income Tax Act. Investment in a MIC may be eligible for investment in registered products such as RRSPs, RRIFs, DPSPs, or RESPs and TFSAs.

Dividends paid to shareholders, other than as a capital gains dividend, are deemed treated as interest payable on a bond.  Where a dividend is paid as a capital gains dividend this amount is not included in the shareholder’s income but rather is deemed to be a capital gain.

Management of the MIC

MICs are managed by mortgage brokerage firms which are provincially registered under the Mortgage Brokers, Lenders and Administrators Act, pursuant to management agreements which set out the duties and obligations of the manager as well as annual and performance fees.  The manager is responsible investing the MICs funds in suitable mortgages and administering the mortgages. Some MICs have a Credit Review Committee comprised of the manager and shareholders whose responsibility it is to review and approve mortgages to be added to the MIC’s portfolio.

Income Tax Act Requirements

A corporation will be a MIC under the section 130.1 of the Income Tax Act if throughout a taxation year:

It is a “Canadian corporation” (incorporated in Canada and a resident of Canada).

Its only undertaking is the investing of funds of the corporation and it does not manage or develop real or immoveable property.

None of its property consists of:

a.  debts secured by real or immoveable property situated outside of Canada;

b.  debts owing to the MIC by non-resident persons (except any such debts secured on real or immoveable property situated in Canada);

c.  shares of corporations not resident in Canada;

d.  real or immoveable property situated outside of Canada or any leasehold interest in such property;

There are 20 or more shareholders of the corporation and no investor is a “specified shareholder” of the corporation during the year. “Specified shareholders” are those who alone or together with related persons hold more than 25% of the issuers shares of a class of the MIC’s share capital.

Preferred shareholders must have the right after payment to them of their preferred dividends and the payment of like dividends to the common shareholders, to participate pari passu with the common shareholders in any further payment of dividends paid to the common shareholders.


The cost amount to the corporation of such property consisting of debts owing to the corporation that were secured by mortgages on houses (as defined in section 2 of the National Housing Act or on housing including within a “housing project” under that Act) and the amounts of any deposits with a bank or credit union or entity insured by CDIC or Quebec equivalent must be at least 50% of the cost amount of all of its property.


The cost amount of all real or immoveable property including leasehold interests on such property (except property acquired by foreclosure or otherwise after a default) must not exceed 25% of the cost amount of all of its assets.


The liabilities of the corporation cannot exceed three times the amount by which the cost amount of all of it properties exceeded its liabilities where at any time during the year the cost amount of its mortgages on residential property and its deposits with a bank or company was less than two thirds of the costs amounts of all of its properties. Otherwise liabilities of the MIC must not exceed five times the amount by which the cost amount to all of its properties exceeded it liabilities.

Securities Act Requirements

Investments in MICs whether through common or preferred equity are subject to securities regulation including the requirement to sell MIC securities under a prospectus or an exemption from the prospectus requirement and the requirement to comply with the dealer, advisor and investment manager registration requirements. The following guidelines are set out in CSA Guidance Staff Notice 31-323:

Generally, mortgage investment entities (“MIEs”) which manage a portfolio of mortgages (“Pooled MIEs”) are only subject the investment fund manager registration if they are considered to be an “investment fund” as that term is defined under securities laws.  If a Pooled MIE is an investment fund then it must ensure that the person or company that directs its business, operations or affairs is registered as an investment fund manager.

A person or company that advises a Pooled MIE about buying or selling mortgages or other securities will be subject to the adviser registration requirement if it is in the business of advising in securities. The securities commissions will consider an exemption from the proficiency requirement  for these individuals.

A Pooled MIE will be subject to the dealer registration requirement if it is in the business of trading in securities as outlined in section 1.3 of 31-103CP.

BAX Securities Law can assist with the creation and administration of a mortgage investment corporation. For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.

This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.