OverviewMortgages as investments
Mortgages offer high rates of return, relatively low risk (by virtue of the real estate pledged as security and the borrower’s personal covenant), and regular income, at a fixed interest rate.
The legal obligations of the borrower, or mortgagor, and the legal remedies available to the lender or mortgagee, are prescribed by law. Accordingly, mortgages have long been an investment option utilized by relatively sophisticated, affluent investors. These investors typically fund 100% of an individual mortgage, and hold the mortgage directly.
Given the dollar amounts involved, substantial capital is required to fund even a small portfolio of mortgages. The individual mortgage investor is solely responsible for all aspects of the underwriting process, including reviewing the real estate being offered as security, scrutinizing the mortgage application (including the credit history of the borrower, verifying the borrower’s income and employment), and assessing their overall financial capacity. Once a decision to lend is made, the individual investor must then negotiate the interest rate, and other terms and conditions applicable to the mortgage, and instruct a solicitor accordingly. Subsequently, the individual investor is responsible for collecting the payments, and dealing with any arrears or default problems which may arise.
My quality of life would not remotely resemble what it is now, had I not invested in Magenta in 2003. That is 14 years! I have realized my lifetime dream of owning a waterfront lot & a gorgeous 2 acre property!Beth Ferrier, Magenta Shareholder since 2003
ProcessHow Magenta produces consistent high returns
Over the past two decades, investment returns generated by the three Magenta Mortgage Group MIC’s have substantially exceeded those produced by alternative fixed income investments such as stocks, bonds and GICs. In addition, these wealth-building returns have been achieved without the levels of volatility associated with other investments.
Several factors make these results possible:
Attractive interest rate spreads and fee income
Magenta MICs employ a bank credit facility. The substantial positive spread between the bank loan rate, and the interest rates applicable to the mortgages issued, substantially increases the investment returns achieved. Fee income is another contributor to returns, as investors benefit from application, set-up, administrative and penalty fees charged to our borrowers.
High-quality mortgages and real estate
We have an extremely low default history, and the investment returns you see are reported net of all expenses, including loan loss. We invest primarily in first mortgages secured by owner-occupied homes, seasonal cottages, residential building lots and land, and secondarily in carefully-chosen residential 2nd mortgages. Most mortgages are secured by real estate in Metropolitan Ottawa and Kingston, Ontario. These are stable, buoyant real estate markets where a significant public sector component renders the regional economies largely recession-proof.
Broad portfolio diversification
Magenta shareholders own an interest in a large, diversified, professionally managed, growing pool of quality mortgages. The portfolio is monitored daily to ensure an optimal mix of different mortgage types, and that the portfolio is always as fully invested as possible. Could you invest directly in a mortgage by yourself? Yes, you could, but you would need a substantially greater investment, and you would face far greater potential for capital loss due to a lack of diversification.
Magenta MICs are managed by very capable professionals, with substantial career experience in all facets of mortgage lending, real estate appraisal, banking and mortgage law. Because we are active in the mortgage market on a daily basis, we have the expertise and knowledge to ensure that we negotiate the most favourable interest rates, fees, and other terms and conditions possible. Once a mortgage is advanced, we handle all facets of portfolio administration. This includes the collection of mortgage payments, payment of realty taxes, maintenance of insurance coverage, mortgage renewals and ultimately discharge of the mortgage.
Magenta employees have invested nearly $6 million of their own money with Magenta. The CEO has also personally guaranteed the companies’ bank debt. In short, Management and staff are highly motivated to achieve the highest investment returns possible, while at the same time mitigating risk as much as possible, consistent with the imperative of ensuring and protecting the long term viability of the Companies.
Transparency and oversight
The type and quality of the mortgages in our portfolios are governed by strict requirements encoded in our bank credit agreements. The banks also provide ongoing oversight by reviewing individual mortgages, appraisal reports and agreements of purchase and sale and by requiring detailed monthly, quarterly and annual reporting. This level of due diligence is commensurate with the size of the credits afforded to our companies.
Enjoy a high return with long term capital appreciation
Mortgages offer high rates of return with relatively low risk (by virtue of the real estate pledged as security and the borrower’s personal covenant), and regular income at a fixed interest rate. Investors can benefit from Magenta’s prudent decision making coupled with our mortgages being located primarily in Eastern and Southwestern Ontario – two of the strongest, most recession resistant real estate markets in the country.
High on consistency, low on volatility
The price paid for high investment returns over time is normally volatility – featuring wildly fluctuating prices and unpredictable annual returns. Magenta share values do not fluctuate in response to market forces like publicly traded stocks, bonds and income trusts, or mutual fund unit values. Magenta has not only outpaced other investments in terms of long term capital growth – it has done so by way of consistently-elevated returns achieved year in and year out – in good markets and in bad – over the last 23 years.
Protecting your investments
All savvy investors understand that there is indeed a positive correlation between risk and return. Our lending activity is concentrated in Ottawa and Southwestern Ontario, real estate markets that are inherently stable and recession resistant. The strength of these markets is founded in local economies that are dominated by the public sector.
Redeem your shares at any time
Shareholders may redeem their shares at any time with three months’ notice. A 4.00% retraction payment reduction applies in the first year following the initial subscription date. The retraction payment reduction does not apply in the event of the death or disability of the shareholder.
Providing regular income to savvy investors
Simply put, mortgages produce regular income. As prescribed within the Income Tax Act (ITA), a Mortgage Investment Corporation (MIC) must distribute 100% of its annual net income to its shareholders in the form of a dividend. Since operations commenced over 23 years ago, Magenta shares have always generated elevated levels of investment income relative to alternative fixed income investments such as bonds or GICs.
We are investors too
The CEO is the largest single investor in Magenta III with shareholdings exceeding $2.6 million. Magenta employees and independent directors hold an additional $2.9 million. Knowing that we are heavily invested in our own portfolio gives our clients peace of mind that we will always be prudent, responsible and make the right decision.
Investor Referral ProgramMaking better tomorrows
You’ve seen your initial investment grow with Magenta and the opportunities that has afforded you; why not share your knowledge with friends and colleagues while bolstering your portfolio?
Magenta offers an investment referral program that pays for referring a prospective investor. This is a great way to strengthen relationships in your personal and professional networks while diversifying your revenue streams.
What is a private mortgage investment?
The legal status of any mortgage is the same, regardless of who holds the mortgage. The mortgage borrower is legally obligated to effect repayment, at a stated interest rate, to the mortgage holder, or mortgagee, within a stated time period. The mortgage loan is secured by a charge on the underlying real estate owned by the mortgage borrower.
Private mortgage interest rates are typically higher than bank mortgage rates. Accordingly, private mortgage investors have the potential to achieve appreciably higher investment returns than those afforded by other fixed income type investments, such as GICs, bonds, and preferred shares. Refer to What is a Mortgage Investment Corporation (MIC)?
Who are the companies' auditors?
How can I monitor my investment?
Shareholders holding their shares outside of a registered plan, also receive a T5, reflecting the amount of their annual taxable dividend. Activity pertaining to shares held within an RSP, RRIF or TFSA will also be reflected in the statements provided by the registered plan trustee.
We welcome shareholder inquiries at any time, and are always happy to discuss the Companies’ results and progress.
How and when are Magenta's profits distributed to shareholders?
The Income Tax Act requires that 100% of a MIC’s net income, as verified by Independent audit, be distributed annually to shareholders in the form of a dividend. Magenta Class “A” Share dividends are paid monthly and may be received in cash or re-invested in additional shares by way of the Company’s Dividend Re-investment Plan (DRIP). Cash dividends are remitted by way of electronic bank deposit.
The dividend is taxed as interest income, in that it essentially represents a flow through of mortgage interest income. Both cash and stock dividends earned outside of an RSP, RRIF or TFSA are fully taxable in the calendar year received.
Monthly dividends are paid at a rate sufficient to achieve an annual effective rate of return equivalent to the Target Yield set on June 1st, the first day of the fiscal year.
The Target Yield is equivalent to the Government of Canada 2 Year bond yield on June 1st plus 5.50%.
The Target Yield for fiscal 2018 ending May 31, 2018, is 6.20%.
At the conclusion of the annual audit, a “top-up” dividend is paid in the event that net income exceeds that level of income required to fund the monthly dividends based on Target Yield.
Shares issued by way of stock dividends at the conclusion of the audit are allotted on June 1st and accordingly are fully eligible for dividends commencing on that date.
Magenta Class “A” Share dividends have alwasy been at least equvialent to the Target Yield.
Shares issued by way of stock dividends at the conclusion of the audit are allotted on June 1st and accordingly are fully eligible for dividends commencing on that date.
How and when can I liquidate my investment?
Retraction fees equivalent to a percentage of the value of the shares being retracted apply in the first year following purchase only, as follows: (i) first 6 months, 3.75%; (ii) second 6 months, 2.00%. The retraction fee does not apply once the shares have been outstanding for 1 year or more. 10% of the investment may be retracted in the first year following purchase without a retraction fee.
Terms and conditions with respect to the purchase of shares for cancellation are specified in the subscription agreement, available upon request.
What are the minimum investment amounts? Will share subscription be closed to new investors?
|Minimum initial subscription:||$25,000|
|Subsequent subscription amounts:||$5,000|
|Subscription deadline:||Issuance of new shares may be suspended without notice at the sole discretion of the Board of Directors|
Who can invest in Magenta shares?
Are Magenta shares RRSP, RRIF and TFSA eligible?
What rate of return may I reasonably expect?
Magenta has exhibited consistent performance over its entire 23-year history, never failing to generate an annual return at least equivalent to Target Yield, and achieving an average annual compounded return of 10.6% over this 23-year period.
Long term Magenta returns compare extremely favourably with all asset classes including short and long term bonds and stocks. Moreover, this superior long term growth was achieved without the often extreme volatility that characterizes stocks and to a lesser extent bonds. Your investment grows consistently year in and year out.
Magenta shares do not fluctuate in value and there is typically only modest variation in annual dividend yields largely in response to changes in market interest rates. Refer to Investment Performance. Past performance is not necessarily an indicator of future performance or expected returns.
How do mortgage investment corporations compare with other investments?
MIC share values do not fluctuate in response to market forces like publicly traded stocks, bonds and income trusts, or mutual fund unit values. MIC share values are always equivalent to the share issue price, because of the Income Tax Act (ITA) rule requiring 100% of a MIC’s net income to be paid out to the shareholders by way of an annual dividend. The share value would only decrease if the MIC experienced an annual operating loss.
For example, a MIC commences operations with $1 million in share capital, comprised of 1 million shares issued for $1.00. each, contributed by a number of individual investors. It utilizes the share capital to acquire a mortgage portfolio, in the amount of $1 million. At the end of the first operating year, the MIC earns an annual net income of $100,000., or 10 cents per share, representing an annual shareholder return on investment of 10.00%.
The Income Tax Act requires that all of the net income must be distributed to the shareholders in the form of a dividend. If all of the shareholders take a cash dividend, the MIC’s assets would remain at $1 million, which when divided by the 1 million shares outstanding, means that the shares are worth $1.00., consistent with the issue price. Conversely, if all of the shareholders elected to receive their dividend in the form of additional shares, the MIC’s assets would be $1,100,000., which when divided by the 1,100,000 shares now outstanding by virtue of the stock dividend, would again equate to a share value of $1.00. However every investor would have 10% more shares, worth 10% more than their original investment.
MIC share values are a function of the quality of the Company’s mortgage portfolio, which in turn is principally determined by the value of the real estate securing the mortgages. Real estate values are affected by a number of factors, including the condition, location and type of the property, and local market conditions. These are factors that can be readily seen, measured and compared. Real estate values tend to be much less volatile than stock and bond prices. Even if the borrower defaults, the mortgage investor is protected by collateral that is stable and immoveable.
Magenta’s mortgage portfolio is low risk for a number of reasons: (i) The real estate security is residential, comprised primarily of single family owner occupied homes; (ii) First mortgages are heavily over weighted; (iii) Lending is concentrated in stable, largely recession proof real estate markets dominated by the public sector, such as Ottawa and Kingston, Ontario. MIC shares typically produce consistent returns, primarily because of the nature of mortgage investments. Mortgage interest rates are fixed, and repayment must occur at regular intervals.
Magenta MIC returns have exceeded those generated by Canadian short and long term bonds and major stock indices over the last 1, 5, 10 and 20 year periods. Refer to Investment Performance.
MIC shares generate substantial regular income relative to alternative investments. In short, investments in mortgage investment corporations are typically characterized by constant share values, attractive, consistent returns, and the potential to generate regular income.
What is a Mortgage Investment Corporation (MIC) and how does it differ from directly held mortgages as a mortgage investment vehicle?
An individual investor may fund 100% of an individual mortgage, and hold the mortgage directly. The investor is solely responsible for sourcing and evaluating the mortgage investment, negotiating the interest rate and other terms and conditions applicable to the mortgage, and instructing the solicitor preparing and registering the mortgage.
Subsequently, the investor has to collect the payments, and deal with any arrears or default problems that may arise. Given the typical principal amount of mortgages in today’s real estate market, the investor would require a huge amount of capital to fund even a small mortgage portfolio. The investor would also typically be restricted to sub-prime mortgages falling outside of the strict lending criteria employed by a large mortgage lender like Magenta.
A Mortgage Investment Corporation (MIC), is a private mortgage investment vehicle wherein individual investors pool their investment capital through share acquisition. The MIC employs a professional manager to source, scrutinize and acquire individual mortgages with the best risk/return profile. The manager is responsible for all aspects of mortgage portfolio administration.
The mortgage portfolio is continuously managed, with newly invested share capital, and the proceeds from repaid and discharged mortgages, being utilized to fund new mortgages. 100% of a MIC’s net income, as verified by external audit, is paid out to the shareholders by way of an annual dividend.
Like any company, a MIC’s net income is equivalent to its revenues, less its expenses. Revenue is earned in the form of mortgage interest, and fees and penalties. Principal expenses are the management fees, and audit and other professional fees. A MIC may utilize funds borrowed from a bank or other lender, in addition to its share capital, to fund a portion of its mortgage portfolio. Some of the salient differences between direct mortgage investing and a MIC, may be summarized as follows:
|Investment Amount||Substantial to achieve even minimal diversification||Relatively small|
|Management||Individual investor wholly responsible||Professional manager|
|Return||Depends on mortgage type and the expertise and diligence of the investor||A professionally managed MIC, employing the prudent use of financial leverage (debt), should achieve higher returns, with lower risk|
|Risk||Depends on portfolio size and composition and the expertise and diligence of the investor||Portfolio size, and the underwriting and portfolio administration expertise of the Manager, serve to reduce risk|
|Liquidity||Mortgage repaid at maturity provided borrower is capable of doing so||Shares may be retracted any time|
|RRSP/RRIF/TFSA Eligibility||RSP/RRIF Only High trustee feesLarge principal amounts reduce flexibility||Yes Minimal fees depending on the TrusteeAny share amount may be deposited; greater flexibility|
How risky are non-institutional mortgages that don't satisfy bank lending criteria?
Given their size and structure, banks are not equipped to underwrite mortgages on an individual, “deal by deal” basis, carefully scrutinizing individual applications to ascertain whether or not real risk is within reasonable limits.
Most fundamentally, banks are not “equity lenders”. In assessing a mortgage application, a bank’s primary focus is on the question of whether or not the prospective borrower has the capacity and commitment to make the mortgage payments. In answering this question, factors relating solely to the borrower, such as income, employment stability, and credit history are assessed. Only if the borrower meets or exceeds the requisite computer generated credit score, will the bank consider the question of the adequacy of the real estate securing the mortgage loan.
Banks routinely decline mortgage applications for a variety of borrower specific reasons including credit history, the inability of self-employed applicants to sufficiently document income, job tenure, and debt service ratios that exceed regulatory and policy defined limits.
The fact that the underlying real estate security adequately limits the real risk is irrelevant. Non-bank mortgage lenders are typically “equity lenders”, in that their primary focus is the strength and quality of the underlying real estate security. Risk is limited as long as the real estate security is sufficient to protect the lender in the event of a default.
The vast majority of Magenta’s portfolio is comprised of mortgages on owner occupied, single family homes. Experience and commons sense tell us that these mortgagors will default on other obligations such as credit cards and loans, before missing a mortgage payment. Banks also operate in a very narrow policy box, with respect to mortgage and property type, preferring to avoid or limit mortgages on recreational properties, building lots, and raw land, or construction or residential second mortgages.
These sorts of mortgages are not necessarily inherently risky. The real issue is whether or not the private mortgage investor has the expertise to carefully scrutinize and structure the mortgage investment, so as to limit the risk to an acceptable level. In short, banks are precluded by government regulation and corporate policy, from underwriting a wide variety of mortgages, wherein investor risk may be limited to reasonable levels, largely by virtue of the strength and value of the underlying real estate security.
Successive regulatory changes imposed by the Federal Government since the 2008 financial crisis have also served to make it progressivley more difficult for many borrowers to obtain a bank mortgage. As a result, the strength of our portfolio has been enhanced by the addition of many mortgages that until very recently would have been funded by the banks.
Refer to What is a Typical Magenta Mortgage? to see some recent illustrative examples of the types of mortgages Magenta funds.
What is a non-bank mortgage investment?
The mortgage borrower is legally obligated to effect repayment, at a stated interest rate, to the mortgage holder, or mortgagee, within a stated time period.
The mortgage loan is secured by a charge on the underlying real estate owned by the mortgage borrower. Non-bank mortgage interest rates are typically higher than bank mortgage rates. Accordingly, private mortgage investors have the potential to achieve appreciably higher investment returns than those afforded by other fixed income type investments, such as GICs, bonds, and preferred shares.
March 23, 2018
By Alex Marshall | Investors
In addition to obtaining advice from your financial advisor, performing your own due diligence is a first step to investing. […]
What is a Mortgage Investment Corporation?
Investors pool their money by buying shares in a company called a Mortgage Investment Corporation (MIC)
MIC’s are special companies created by virtue of Section 130.1 of the Income Tax Act, a federal statute, to enable investors to invest in a pool of mortgages. Refer to Income Tax Act, Section 130.1: Salient Rules, below. MIC’s may also borrow from a bank or other lender, employing both the shareholders’ capital and loan proceeds to fund its mortgage portfolio. The pool of mortgages is continuously managed, with newly invested share capital, and the proceeds of repaid and discharged mortgages, being utilized to fund new mortgages.
The MIC’s management is responsible for all aspects of the Company’s operations, including the sourcing of suitable mortgage investments, the analysis of mortgage applications, the negotiation of applicable interest rates, terms and conditions, instruction of solicitors, mortgage portfolio and general administration. Like an investment fund, the Mortgage Investment Corporation’s management in this case Magenta Capital Corporation, the General Partner, is compensated for carrying out these duties by way of an income distribution.
The Income Tax Act requires that 100% of a MIC’s annual net income, as verified by external audit, be distributed to its shareholders, in the form of a dividend. This dividend is taxed as interest income, in that it essentially represents a flow through of the interest earned on the Company’s mortgage portfolio. Like any company, a MIC’s net income is equivalent to its revenues, less its expenses. A MIC’s revenues are comprised primarily of mortgage interest, and fee income. Expenses are comprised primarily of cost for the administration of the fund, audit and other professional fees, and loan interest, if the MIC is employing debt in addition to share capital.
Income Tax Act, Section 130.1: Salient Rules
- A Mortgage Investment Corporation must have at least 20 shareholders.
- A MIC is generally widely held. No shareholder may hold more than 25% of the MIC’s total capital.
- At least 50% of a MIC’s assets must be comprised of 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, but a MIC may accept investment capital from outside of Canada.
- A MIC is effectively a tax-exempt corporation.
- Dividends received are taxed as interest income in the shareholder’s hands. Dividends may be received in the form of cash, reinvested in additional shares through our dividend reinvestment program.
- MIC shares are qualified RRSP and RRIF investments.
- A MIC may distribute income dividends, typically interest from mortgages and revenue from property holdings, as well as capital gain dividends, typically from the disposition of its real estate investments.
- A MIC’s annual financial statements must be audited.
- A MIC may employ financial leverage by using debt to partially fund assets.
What is a Typical Magenta Mortgage?
1. Quality Real Estate, Imperfect Credit, Salaried Borrower
- 1st Refinance
- 6.99% rate
- 1% retained fee
- 75% LTV
- B Credit
- Beacon 626/653
- Salaried Employee
- 22.88% GDS *
- Urban Ottawa
2. Quality Real Estate, Good Credit, Non-Salaried Borrower
- 1st Purchase
- 4.99% rate
- 1.7% retained fee
- 66% LTV
- A credit
- Beacon 807
- Self Employed
- Urban Guelph
Example 1: Quality Real Estate, Strong Borrower, Application Outside Narrow Bank Lending Policy
- 1st Purchase
- 5.99% rate
- 1.5% retained fee
- 80% LTV
- A Credit
- Beacon: 758
- Salaried Employee
- 19% GDS
- Urban Ottawa
Example 2: Quality Real Estate, Strong Borrower, Application Outside Narrow Bank Lending Policy
- 1st Purchase
- 6.69% rate
- 0.5% retained fee
- 58.57% LTV
- A credit
- Beacon: 814
- Salaried Employee
- 29.20% GDS
- Urban Cambridge
How to Invest
How an investment in Magenta works
Magenta Participating Class “A” Shares
Investors may currently subscribe for Magenta Participating Class “A” Shares possessing these attractive features:
(I) DIVIDEND YIELD
The shares are intended to achieve an annual return at least equivalent to the Government of Canada 2 Year Bond Yield at the beginning of each fiscal year (June 1st) plus 5.50%. Please refer to Investment Performance and FAQ: How and when are Magenta’s profits distributed to shareholders?
(ii) Dividend Payment
Dividends are remitted monthly. Dividends are payable in cash or may be re-invested in additional shares through the Company’s Dividend Re-Investment Plan (DRIP).
Shareholders may retract their shares at any time at a price equivalent to the issue price plus any unpaid dividends. Payment is effected by the end of the month following the month in which the retraction notice is received by the Company. Please refer to FAQ: How and when can I liquidate my investment?
The Subscription Agreement executed at time of any investment details complete share terms and conditions and is available on request in order to facilitate any investment decision.
Canadian residents and non-residents may subscribe for Magenta Class “A” shares .
Canadian residents are governed by rules prescribed by Provincial securities regulators. In Ontario, these rules effectively restrict investment to Accredited Investors and Eligible Investors.
Accredited investors must satisfy only one of the following criteria.
- Net financial assets owned by investor and spouse (excluding real estate) of >$1 million;
- Annual income of >$200,000 ($300,000 including spousal income);
- Net worth (including real estate) of >$5 million.
Accredited investors may subscribe for Magenta Class “A” Participating Shares in amounts >$25,000.
Shares purchased directly or within a registered plan may be combined for the purpose of satisfying the minimum subscription requirement. For example, an investor’s initial $150,000 subscription could conceivably be comprised of$75,000 in RSP shares, $55,000 in directly held shares and $20,000 in Tax Free Savings Account (TFSA) shares.
Accredited investors may make subsequent investments in amounts >$5,000.
Shares may be held directly, or in an RRSP, RRIF or TFSA.
Directly held shares may be held individually, jointly, in trust, or by a corporation.
Eligible Investors and “Others” may invest if the issuer of securities provides an OM in advance of the investment.
An investor is deemed to be an Eligible Investor if any one of the following criteria are satisfied:
- Annual income >$75,000; >$125,000 including spousal annual income;
- Net Worth >$400,000 (includes all financial and non-financial (eg. real estate) assets, less any debts).
- An Eligible Investor may invest < $30,000 annually without restriction;
- If the dealer opines that the investment is suitable, then an Eligible Investor may invest more than $30K annually, subject to an annual maximum of $100K;
- The securities commissions take the view that any investment in a private company (not listed on a stock exchange) constituting >10% of the investor’s financial assets raises questions and concerns re. suitability, regardless of the nature of the private company investment;
- If investor doesn’t satisfy any of the Eligible Investor criteria then their investment would be capped at $10Kannually.
I. Direct Cash Investment
Minimum initial share subscription is $25,000.
The shares have a constant par value of $10.00 each, and may be issued in any multiple of $10.00.
Please contact us to obtain a Subscription Agreement.
II. RRSP/RRIF INVESTMENT
Mortgage Investment Corporation (MIC) shares are qualified RRSP and RRIF investments, as prescribed within the Income Tax Act.
A Self-Directed RRSP or RRIF is required to hold the shares.
Investors should contact their RRSP or RRIF trustee to ascertain their policies and procedures with respect to the inclusion of MIC shares within their plans. Alternatively, Magenta can assist investors in establishing a Self-Directed RRSP or RRIF with the trustees it normally deals with.
A registered plan share transaction may take a variety of forms, as follows:
(1) RRSP Contribution
Contribution In Kind
An investor may wish to utilize some or all of their current year’s RSP contribution room, to make a new investment in Magenta. The shares would be purchased directly from Magenta, but registered in the name of the RSP trustee. The duly registered share certificate would be delivered directly to the RSP trustee as a “contribution in kind”. For example, 2,297 Magenta Class “A” Participating Shares, worth $10.00 each, contributed in kind to an RSP, would represent a contribution of $22,970.00 and the trustee would issue a contribution receipt in this amount.
Alternatively, the investor could make a cash contribution directly to their RSP, and then utilize the cash, conceivably supplemented by cash already in the plan, to purchase shares. In this instance, a share certificate registered in the name of the RSP trustee, would be delivered to the trustee. Upon receipt, the Trustee would forward payment directly to Magenta.
The “contribution in kind” method ensures that the shares are eligible for dividend payment for the maximum period possible. For dividend calculation purposes, the shares are not considered issued until payment in full is received.
RRSP Contribution Loans
Investors may arrange loans from their trustees, wherein the proceeds are credited directly to their plans as a new RSP contribution. The resulting cash in the plan can then be used to fund any qualified RSP investment.
Investors may also elect to utilize other types of loans or mortgages to fund RSP contributions.
(2) RRSP/RRIF Purchase From Cash on Hand
Investors may use existing RRSP and RRIF assets to purchase shares. In this instance, the trustee would be directed to liquidate existing investments so as to generate the requisite amount of cash required to complete the share purchase.
Magenta would deliver the share certificate, registered in the name of the RRSP/RRIF Trustee, to the Trustee, and the Trustee would in turn effect payment directly to Magenta.
Investors may elect to utilize both new RSP contributions, and existing assets within their RRSPs, to fund Magenta share purchases. Investors should be mindful of the minimum share subscription amounts, specified above.
III. TFSA Investment
Mortgage Investment Corporation (MIC) shares are qualified TFSA investments, as prescribed within the Income Tax Act.
Magenta can assist investors in establishing a low fee TFSA with the trustee it routinely deals with.
Please contact us concerning any aspect of either Direct Cash or RRSP/RRIF/TFSA share issuance, or to obtain a Subscription Agreement and a comprehensive investor information package including financial statements and detailed mortgage portfolio composition data.