A Mortgage Investment Corporation, or MIC, is a way for everyday investors to earn income from mortgage lending — without originating or servicing loans themselves. It is a distinctly Canadian structure, created by Parliament in 1973, and it has become a common building block of the private lending market. Here is how it works, in plain language.
The basic idea
A MIC pools money from many investors and lends it out as mortgages secured by real estate. Borrowers pay interest on those mortgages, and that interest — after the fund's expenses — flows back to investors as distributions. In effect, investors act as the lender, collectively, and earn the kind of income a bank might earn on a mortgage.
When you invest in a MIC, you are not buying a single mortgage. You are buying a share of a diversified pool of many mortgages, which spreads your exposure across numerous borrowers and properties.
The rules that make a MIC a MIC
Unlike an ordinary company, a MIC must follow specific requirements set out in Section 130.1 of the federal Income Tax Act. The main ones include:
- At least 50% of its assets must be residential mortgages and/or cash and insured deposits.
- It must have at least 20 shareholders, and no single shareholder can control too large a stake.
- It cannot own real estate for development — a MIC is a lender, not a builder or landlord (though it may take possession of a property through foreclosure).
- It must distribute essentially all of its net income to shareholders each year.
That last rule is important. Because a MIC pays out nearly all of its income, it generally pays little or no corporate tax itself — the income instead "flows through" to investors, who are taxed on it.
How investors earn
Investors in a MIC typically earn through regular distributions — monthly, quarterly, or annually depending on the fund. Many MICs also offer a Dividend Reinvestment Plan (DRIP), which automatically uses your distributions to buy more shares instead of paying you cash. Reinvesting allows your investment to compound over time; taking the cash gives you a steady income stream. Which one suits you depends on whether you need income now or are investing for growth.
How MIC income is taxed
Because of the flow-through structure, distributions from a MIC are generally taxed in the investor's hands as interest income, not as dividends or capital gains. Interest income is taxed at your full marginal rate, which is why many investors choose to hold MIC shares inside a registered account.
Can you hold a MIC in a registered account?
In many cases, yes. Shares of a qualifying MIC are often eligible to be held in registered plans such as an RRSP, TFSA, RRIF, or LIRA. Holding a MIC inside a registered account can shelter the interest income from immediate tax — tax-free in a TFSA, or tax-deferred in an RRSP or RRIF. Eligibility and contribution rules vary by plan and by fund, so this is worth confirming with the fund and your own advisor.
- A MIC pools investor money to lend on mortgages and passes the interest income back to investors.
- It must follow specific tax-law rules, including distributing nearly all of its income each year.
- Distributions are generally taxed as interest income — often best held in a registered account.
- Returns are not guaranteed, and MIC shares are not the same as a GIC or a bank deposit.
The risks to weigh
A MIC can offer attractive, real-estate-backed income, but it is an investment — not a savings product — and it carries real risks:
- Not guaranteed or insured. Unlike a GIC or a bank deposit, MIC shares are not covered by CDIC or any deposit insurer. You can lose some or all of your investment.
- Credit and real-estate risk. If borrowers default and property values fall, the fund's income and capital can be affected.
- Liquidity. MIC shares are not traded on a public exchange. There is usually no ready secondary market, and redemptions may be limited or subject to notice periods.
- Manager dependence. Results depend heavily on the underwriting discipline and judgement of the fund's management.
Reputable MICs manage these risks through conservative loan-to-value limits, diversification across many mortgages, and independent oversight from auditors, trustees, and legal counsel — but risk can be managed, never eliminated.
Is a MIC right for you?
MICs tend to suit investors who are looking for income, are comfortable with a fixed term and limited liquidity, and want exposure to real estate without owning property directly. In Canada, most MICs are offered only to eligible or accredited investors and only through an Offering Memorandum, sold by a registered dealer. The right way to evaluate any specific MIC is to read its Offering Memorandum in full and speak with a qualified advisor about your own situation.
Morex Asset Management Corp. manages a MIC focused on short-term residential mortgages in Ontario. If you'd like to understand how it works, you're welcome to request investor information or read our Learn page.
