Gross Yield, Net Yield and After-Tax Yield on a Mortgage Investment

Most confusion about net yield vs gross yield on a mortgage investment comes from one habit: quoting a single percentage without saying what it measures. A 10% loan rate, an 8% distribution and a 4.8% after-tax income can all describe the same investment in the same year. Each is accurate; each answers a different question.

This guide separates the three numbers, shows what sits between them and explains how mortgage investment income is taxed in Canada, with a worked example across account types. This is general education, not investment, tax or legal advice. Tax information is as at October 2026. Mortgage investments are not guaranteed. Returns are targets, not promises, and principal can be lost. Higher yields come with higher risk.

Mortgage investment yield explained: three numbers, three questions

Yield is the income an investment produces in a year, as a percentage of the capital invested. In mortgage investing it is quoted at three different stages, and the stage matters more than the figure. (Terms are defined in the mortgage investment glossary.)

A fourth idea sits beside these: total return, which adds any change in the value of the investment. If loan losses reduce the value of a fund’s shares, total return can be lower than the net yield paid out that year.

Net yield vs gross yield on a mortgage investment: what sits between them

The gap between gross and net yield is the cost of running the investment and the losses it absorbs. Each item below reduces what reaches the investor; the full list is itemised in the real fee stack in a mortgage investment.

• Management fee — paid to the manager of a MIC or fund, usually a percentage of assets or capital.
• Administration or servicing charge — paid to the mortgage administrator.
• Fund operating expenses — audit, legal, trustee and registrar costs.
• Loan losses and provisions — shortfalls on defaulted loans after enforcement.
• Idle cash — capital waiting to be lent or held for redemptions, earning little.
• Borrowing costs — interest on any credit facility, which can raise or lower net yield depending on the spread.
• Costs outside the fund — dealer commissions and, for registered accounts, plan trustee fees, which come off the investor’s own result.

Two quoting habits are worth checking. First, is the quoted rate the loan rate (gross) or the distribution rate (net)? Lendmax Capital MIC, for example, reports a net rate of return paid to investors by fiscal year, which is a net figure. Second, is the rate measured on the original subscription price or on the current value of the shares?

How the income is generated in the first place is covered in where mortgage investment returns come from.

Gross and net yield on a direct mortgage versus a MIC

The same three numbers behave differently depending on whether the investor holds one loan or a share of a pool. The difference is in how losses arrive.

• Direct or syndicated mortgage. Gross yield is close to the contract rate. Net yield is the contract rate less the administration charge — in a year with no default. Losses are lumpy: most years show none, and a default year can turn the net result sharply negative, as the direct mortgage investing example shows.
• MIC or pooled fund. Gross yield is a blend of many loan rates plus any fees the fund keeps. Net yield already reflects the pool’s fees, expenses and losses for the period, so one default is diluted across every shareholder’s income.

Neither pattern is better in itself. A direct investor sees a higher net yield in a good year and carries the full weight of a bad one; a pooled investor gives up part of the gross to fees in exchange for spreading the loss.

Annualized, actual and time-weighted: the period behind a yield

A yield is only meaningful with its period attached. Three distinctions come up often.

• Annualized versus actual. A quarter’s distribution multiplied by four is an annualized rate, not a year’s actual result. Ask for full fiscal years.
• Partial years. An investor who subscribes mid-year receives distributions only for the time invested; the annual rate does not apply to the whole calendar year.
• Capital waiting to be lent. A fund that raises money faster than it can lend it carries idle cash, which lowers the net yield on all shareholders’ capital for that period.

Any historical figure needs its period and source beside it, and past performance does not indicate future results.

How is an annualized return on a mortgage investment calculated?

An annualized return restates a result earned over a shorter or longer period as a yearly rate, so that different periods can be compared. Assume a fund pays 2% of capital for one quarter: the simple annualized rate is 2% × 4 = 8%. If the distributions are reinvested, for example through a distribution reinvestment plan (DRIP), the compounded figure is higher: (1.02 × 1.02 × 1.02 × 1.02) − 1 = 8.24%, rounded.

Three questions keep an annualized figure honest. Is it simple or compounded, since the two differ for the same income? What period was it built from, since one strong quarter multiplied by four is not a year’s result? And is it gross or net of fees and losses? An annualized rate is a way of expressing a number, not a forecast; the actual result over a full year can be lower, and distributions may be reduced or suspended.

How is mortgage investment income taxed?

How the net yield is taxed depends on the structure. For a MIC, subsection 130.1(2) of the Income Tax Act deems a taxable dividend (other than a capital gains dividend) to be received by the shareholder as interest on a bond issued by the corporation. In practice:

• The dividend is taxed as interest income at the investor’s marginal rate.
• There is no dividend gross-up and no dividend tax credit, unlike ordinary dividends from Canadian public companies.
• It is reported on a T5 slip.
• If a MIC designates part of a payment as a capital gains dividend, that part is treated differently, and the slip shows it.

Interest from a direct or syndicated mortgage is interest income too. The fuller picture, including corporate and non-resident investors, is in how mortgage investment income is taxed in Canada.

How much tax will I pay on MIC dividends?

In a non-registered account, the tax is approximately the dividend multiplied by your combined federal and provincial marginal rate — the rate on your next dollar of income. Because the interest is added to your other income, it is taxed at that marginal rate, not your average rate. If an investor’s average rate were an assumed 20% and their marginal rate an assumed 30%, using the average would understate the tax on an $8,000 dividend by $8,000 × 10% = $800.

We do not quote marginal rates here: they depend on the province, the tax year and your total income, and they change. The Canada Revenue Agency publishes federal rates, each province publishes its own, and a Canadian tax professional can confirm the combined rate that applies to you. Extra interest income can also affect income-tested benefits and credits, which is worth raising with the same professional.

The account the investment sits in changes the timing or removes the tax:

• Non-registered — taxed each year at the marginal rate.
• RRSP or RRIF — no tax as the income is earned; withdrawals are taxed as income when taken.
• TFSA — income is generally not taxed, and qualifying withdrawals are generally tax-free.

MIC shares are generally a qualified investment for registered plans, but under the prohibited-investment rules in section 207.01 of the Income Tax Act they can become a prohibited investment if the plan holder, with non-arm’s-length persons, holds 10% or more of any class. The tax content in this section is as at October 2026.

After-tax return on a mortgage investment in Canada, worked through

The arithmetic from gross to after-tax is short, and doing it once makes every quoted rate easier to read.

Worked example (illustrative)

An investor places $100,000 in a MIC. The figures are assumptions chosen for clear arithmetic, not market rates or tax rates for any province.

• Gross yield. The MIC’s mortgages earn an assumed 10%: $100,000 × 10% = $10,000.
• Fees, expenses and losses. Together an assumed 2%: $100,000 × 2% = $2,000.
• Net yield. $10,000 − $2,000 = $8,000, or 8.0%.
• After tax, non-registered, assumed 30% marginal rate. Tax $8,000 × 30% = $2,400; kept $8,000 − $2,400 = $5,600, or 5.6%.
• After tax, non-registered, assumed 45% marginal rate. Tax $8,000 × 45% = $3,600; kept $8,000 − $3,600 = $4,400, or 4.4%.

At the higher assumed rate, the investor keeps $4,400 of every $10,000 the loans earn — 44% of the gross. The same $8,000 by account type:

The RRSP line defers tax rather than removing it. The after-tax yield calculator runs the same steps with your own amount, yield, fees, marginal rate and account type.

Comparing yields across investments, like for like

A fair comparison sets net against net and after-tax against after-tax, and then looks at the risk behind each figure.

• GICs. GIC interest is also taxed as interest income, so the tax treatment is similar. The difference is protection: a GIC is a deposit that can be insured by the Canada Deposit Insurance Corporation (CDIC) up to $100,000 per insured category at member institutions, while mortgage investments and MIC shares carry no CDIC or provincial deposit insurance. See mortgage investing vs GICs.
• Dividend-paying shares. Eligible dividends from Canadian public companies receive the gross-up and dividend tax credit, so their after-tax yield compares differently, and they carry equity-market risk instead of credit risk.
• Capital gains. Gains are taxed differently from interest; a growth investment’s after-tax comparison depends on when gains are realised.

A higher yield on any of these generally reflects higher risk.

Common mistakes when reading mortgage investment yields

These errors come up repeatedly in investor questions about yields and tax.

• Calling the loan rate “the return”. The loan rate is gross; the investor receives the net.
• Forgetting costs outside the fund. Dealer commissions and plan trustee fees reduce the investor’s own result. Flat fees weigh more on small balances: an assumed $200 annual trustee fee is $200 ÷ $25,000 = 0.8% of a $25,000 account, but $200 ÷ $100,000 = 0.2% of a $100,000 one.
• Using an average tax rate. Additional interest income is taxed at the marginal rate.
• Expecting the dividend tax credit. MIC dividends are deemed interest and do not receive it.
• Treating RRSP income as tax-free. It is tax-deferred; withdrawals are taxed.
• Assuming the net yield is fixed. A year with defaults can produce a lower net yield than the target, and distributions may be reduced or suspended.

What this means for a mortgage investor

Gross, net and after-tax yield measure what the loans earn, what reaches the investor and what the investor keeps, and only the last is spendable. MIC dividends are taxed as interest at the marginal rate, so the account type and the investor’s own tax position shape the result as much as the quoted rate. Behind every yield sit the seven axes on which mortgage investments vary — the borrower, the property, the loan-to-value, the security position, the term, the jurisdiction and the investment structure — and a higher yield generally reflects more risk along one or more of them.