It’s taxes versus a mortgage for the self-employed

Canada's government as been acting since 2009 to tighten mortgage lending requirements in their ongoing efforts to ensure Canadians do not face the ruinous housing collapse endured by Americans and many Europeans since the collapse of 2008.  As a signatory to the Basil Accords along with the USA and all the Euro nations Canada's government is obligated to comply its banks to adhere to much stricter underwriting guidelines and due diligence.   And this has made it tougher for all Canadians to obtain mortgage financing.  Since Guideline B-20 came into effect in 2012 those of us (myself included) who are self-employed (BFS or Business For Self in industry parlance) have been heavily impacted.

Most self-employed Canadians will, usually following the advice of their Tax Advisers, will focus on lowering their taxable income via the use of various expenses to their business.  This is effected easily both with incorporated businesses and for those operating as proprietorships.  This results in lower line 150 income on the personal tax return, sometimes by significant amounts.

Prior to B-20 guidelines being in effect, such borrowers could qualify by simply 'declaring' their income, in effect adding back those deductions, and along with proving their self employed status and often backing up the numbers with bank statements showing the scope of cash flowing through those accounts.

There is an excellent piece on the tougher hurdles Canada’s self-employed now face in getting a mortgage, and what they can do to improve their prospects here in the Globe and Mail's article It's taxes versus a mortgage for the self-employed

Disclosure: Garth Chapman is a licensed Mortgage Advisor with Jencor Mortgage Corporation in Calgary Alberta. Garth is not a Financial Planner. Roadmap should not be considered as a substitute for what a licensed Financial Planner provides. The information contained in this website should not be construed as personalized investment, financial planning, or tax advice.

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