Michael, a Principal Broker in Ontario, is presenting an investment opportunity in a Mortgage Investment Corporation (MIC) to a sophisticated investor, Sarah. Sarah is looking for stable, income-generating investments. What is a key characteristic of an MIC that Michael must clearly disclose?

Question: Michael, a Principal Broker in Ontario, is presenting an investment opportunity in a Mortgage Investment Corporation (MIC) to a sophisticated investor, Sarah. Sarah is looking for stable, income-generating investments. What is a key characteristic of an MIC that Michael must clearly disclose?

Answer options: ✅ MICs are typically exempt from corporate income tax if they distribute 100% of their net income to shareholders.

• Investments in MICs are guaranteed by the Canada Deposit Insurance Corporation (CDIC).
• MICs primarily invest in publicly traded equities and fixed-income securities.
• Shareholders in an MIC directly own a proportional share of each underlying mortgage in the portfolio.

Correct answer: MICs are typically exempt from corporate income tax if they distribute 100% of their net income to shareholders.

Explanation: A key characteristic of an MIC, as defined by the Income Tax Act (Canada), is its flow-through taxation structure, allowing it to be exempt from corporate income tax if it distributes all its net income to shareholders, who then pay tax on the dividends received.