COMMONLY ASKED MIC QUESTIONS
WHAT IS A MIC?
A Mortgage Investment Corporation (MIC) is a special company created by virtue of the Canadian Income Tax Act which enables investors to invest in a pool of Canadian mortgages. Investing in mortgages has long been an investment vehicle only available to sophisticated and affluent investors. Alta Pacific allows investors at all levels to share in the returns generated by mortgages on Canadian real estate.
HOW DOES A MIC WORK?
Investors’ capital is used to fund mortgages – mortgages secured by Canadian residential and commercial properties. By their nature, mortgages generate a yield through interest rates and fees charged to borrowers. As opposed to many other real estate investments where future value is forecasted or assumed, MICs generate monthly cash flow through interest payment made by borrowers. The Income Tax Act requires that 100% of a MIC’s annual net income – generated through interest and fees – be distributed to its shareholders in the form of a dividend.
I THOUGHT MORTGAGES WERE PROVIDED BY MAJOR CANADIAN LENDING INSTITUTIONS?
Full term (e.g. 25 year term) conventional mortgages are most often provided by the large Canadian lending institutions. Specialty mortgage lenders like Alta Pacific offer shorter term (1-3 year) specialty mortgages that Canadian banks often do not offer. These are desired by some Canadians where the borrower requires funds for a minimal amount of time. Canada's major financial institutions do not commonly provide these short term (1-3 year) mortgages.
WHAT ABOUT THE LIQUIDITY OF MY INVESTMENT?
By their nature, MICs are not considered liquid investments when compared to stocks traded on open exchanges (TSE, NYSE etc.). Understanding Alta Pacific’s business helps investors appreciate the liquidity of their investment. Investor capital is placed in mortgages with terms of 6-12 months. In order to achieve the 8-11% target rate of return, the company works to place investor capital in mortgages rather than in the bank. The company also plans for monthly dividend payments as well as return of capital requests from its investors. Alta Pacific aims to fulfil investor initial capital requests within 30-90 days. If investors can plan ahead for their retraction of shares, the corporation would prefer capital requests made 60 days prior to the company’s year-end (June 30).
ARE THERE RESTRICTIONS ON HOW A MIC OPERATES?
Yes, The Canadian Income Tax Act (Section 130.1) clearly outlines rules that all MICs must follow. They include:
- A MIC must have at least 20 shareholders
- No shareholder may hold more than 25% of total capital
- At least 50% of a MIC’s assets must be comprised of Canadian residential mortgages, and/or cash and insured deposits at Canada Deposit Insurance Corporation member financial institutions
- A MIC may invest up to 25% of its assets directly in real estate, but may not develop land or engage in construction. This ceiling on real estate holdings does not include real estate acquired as a result of mortgage default
- A MIC is a flow-through investment vehicle, and distributes 100% of its net income to its shareholders
- All MIC investments must be in Canada A MIC’s annual financial statements must be audited