Well, the more I dig into this topic the more incredible information I seem to run into. Obviously, I have just touched the surface so far, so just to keep the topic flowing I will start with some information about what a MIC is and how they work.
MIC stands for Mortgage Investment Corporation and under Section 130.1 of the Canadian Income Tax Act, this is a special company created to enable investors to invest in a pool of mortgages. The MIC issues shares to its investors and then using the share capital and loan proceeds from banks is able to purchase various types of mortgages. The MIC then generates a profit from the interest it charges on each individual mortgage and the fees it charges on mortgages, much like a regular bank.
This profit is then split up with a small percentage going towards a management fee to pay the managers, some towards professional fees incurred by the business and to any other loan charges it may incur. The remainder of the income left after all these expenses are paid out is the MIC’s annual net income. As part of the Income Tax Act, the annual net income has to be 100% distributed to its shareholders as a dividend.
So broken down, if the management fee and admin costs are 2%, there are 100 shares and they make $100 profit, the managers get $2 and the other $98 are paid out to each share, so everyone would get $.98 per share. Of course, the numbers are all multiplied significantly as MIC’s tend to deal with millions of dollars worth of mortgages, but this should give you an idea.
So there are the basics of a MIC, hope this is a good start, would love to hear any questions this brings up! Later I will talk about how a MIC can be utilized in your Tax Free Savings Account to really take advantage of your investments.
