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Tag: 130.1

Taxation of a MIC, a Mortgage Investment Corporation

The MIC itself will not pay income tax so long as the profits are flowed through to the shareholders and taxed in their hands. This is advantageous to an investor who has purchased MIC shares through a self-directed registered retirement savings plan (RRSP) or a self-directed registered retirement income fund (RRIF) as the tax is deferred until the funds are transferred or annuitized.In the case of Tax Free Savings Accounts (TFSA), the dividends earned are tax-free when withdrawn. Although taxable dividends received from the MIC are considered interest income, they do not qualify for any gross-up or dividend tax credit and are subject to full income inclusion by the shareholder (ITA 130.1 (2) and (3)). Although fraudulent occurrences are uncommon since MICs must produce audited financial statements each year, an investor can research to see if the MIC is subject to any lawsuits by reviewing its yearly financial

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Managing A MIC, a Mortgage Investment Corporation

The creation of a MIC is similar to other corporations in the method of organization, election of directors/officers and the faculty to appoint committees, hire employees, and issue shares. Generally, a MIC will authorize and issue several different classes of shares including common voting shares and preferred non-voting shares. All classes will have pari-passu rights to dividends, if any, and to participation on winding-up.Provincially licensed mortgage brokers/agents and administrators are typically accountable for the management of the MIC; this involves sourcing, originating, underwriting, acquiring and administering mortgages that would provide the greatest rate of return with the lowest possible risk. The mortgage portfolio is continuously managed with newly invested share capital and the proceeds from repaid and discharged mortgages are utilized to fund new mortgages. MICs typically include a Credit Review Committee of shareholders who are responsible for the review and approval or rejection of mortgage applications in the portfolio. This is to protect shareholders’ investments while remaining cognizant of current market conditions and any potential underlying risks. Since brokers gain commission from placing mortgages, they are restricted from acting as members of Credit Committees due to an obvious conflict of interest. At the end of every fiscal year, audits of a MIC’s annual financial statements must be made by an independent accounting firm.

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