Structuring Mortgage Investment Corporations In Canada

The Product

Mortgage investment corporations ("MICs") are investment management companies holding a portfolio of loans secured against Canadian real property and certain similar assets and generally generate most of their income through interest and mortgage borrower fees. For investors, these corporations provide a unique opportunity to gain exposure to a diversified pool of mortgage assets through a single security. MICs are subject to a special tax regime under the Income Tax Act ("ITA"), whereby MICs distribute income generated by the MIC to shareholders by way of a dividend that is generally taxed in the hands of Canadian-resident taxable investors as interest income (i.e., the preferential tax treatment ordinarily applicable to dividends generally does not apply). As MICs are generally eligible to claim a deduction in respect of amounts distributed to shareholders as dividends, in practice MICs are generally not subject to material Canadian income tax.