Natasha Shaw

Our team understands that many self-employed people withdraw less personal income from their company in order to reduce their personal income tax. While this is great for tax purposes, it requires a special approach when it comes to qualifying you for a mortgage.

These types of loans were very popular a few years ago. They provide the opportunity for a borrower with a good credit score to purchase a mortgage without verification of income. It is important to note that these loans are higher risk!

There are 2 categories of income for self-employed people:

• Verified Income – this is where we qualify using income from line 150 on your Notice of Assessment (from CRA). The income can be averaged or grossed up by 15% to be considered verified (Note: Add-backs may be used; call for more details).

• Stated Income – this is where self-employed people declare a reduced salary, however, they need to state a higher income to qualify for the mortgage amount. This is what this page discusses and covers in detail.

The key to this program is accurately depicting the “stated” part of your income. Meaning, the lenders and insurers are looking to see that the stated income portion (that is submitted to a lender) is reasonable based on the industry, length of operation, and type of business.

If you’d like to discuss whether a Self-Employed Mortgage is right for your particular situation, please Contact Me!

Types of Self-Employment

Sole Proprietorship
A one-owner operation where the owner directs all the activities of the business, assumes all authorities and obligations, and is liable for its business debts. The sole proprietor income is reported to Revenue Canada on the standard tax return (T1 General) together with Revenue Canada's required statement of business or professional activities.
Documents Required:

1.    T1 Generals with statement of business activities

2.    Previous 2 years’ Notices of Assessment from Revenue Canada (CRA)

3.    Business Licence

Partnerships
Partnerships are businesses owned by two or more individuals who share the profits or losses of the business operation. The partnership income is reported to Revenue Canada on the standard tax report (T1 General) together with Revenue Canada's required statement of business or professional activities, which reflects the percentage of the net income or loss for each partner of the enterprise.
Documents Required:

1.    T1 Generals with statement of business activities

2.    Previous 2 years’ Notices of Assessment from Revenue Canada (CRA)

3.    Audited Financial Statements for the previous 2 years prepared by an accountant (CA)

4.    Business Licence

Corporations
A limited company or corporation is a legal entity, separate from the persons (all shareholders) who own it. The business can own assets, enter into contracts and conduct business transactions in its own capacity. The company is called limited because the liability of the shareholders is limited to their investment. All provincial corporations must obtain articles of incorporation from the province in which they are registered or may be federally incorporated. The applicant's personal income will be reported by T4 from the corporation.
Documents Required:

1.    Articles of Incorporation w/ all schedules

2.    Previous 2 years’ Notices of Assessment from Revenue Canada (CRA)

3.    Audited Financial Statements for the previous 2 years prepared by an accountant (CA)

Related Topics:

Qualifying for a Mortgage

Pre-Approval vs. Pre-Qualifying