If you are “business for self”, your best bet in saving you money on taxes is with a professional chartered accountant. You know this already, and we know this – as we are in business owners too. But when you are purchasing a home or wanting to use equity in your home; be careful how you declare you income. Claiming income on your personal side is necessary to show that your income can afford the mortgage-especially if you want the best rates!
In the summer of 2012, Canada’s Financial Regulator introduced B-20. For persons who are business for self and have less than 35% down for their mortgage this bill authorizes the banks and mortgage lending institutions to use the two most recent years’ line 150 of personal tax Notice of Assessment (NOA). For businesses that are incorporated, the most recent two years’ business financials are also require so that the bank can see how well your business is doing and how you pay yourself. If your tax savings strategy is to keep money in the company or your write off your personal income- this will lower your income amount on line 150. Which means you will have less purchasing power as your qualifying mortgage amount will decrease.
The recent Canadian wide government regulation changes and “stress- testing” that came into effect in October of 2016, have had the effect of decreasing Canadian purchasing power by 20%- all around- self employed or salaried. The result is the need to show income on your personal taxes and you need to be in business for two years so that you can qualify for the best rates.
This sounds like dreary news, however, there are options!
If you have not been in business for two years or you are choosing to declare less to Revenue Canada- there are lenders who specialize in mortgage financing for entrepreneurs like you. You receive tax benefits that other salaried or hourly wage employees do not, therefore you will expect to pay higher interest rates around the 4%, which is slightly higher than today’s best rates around 2-2.5%. It comes down to deciding where you would rather spend your money- toward your mortgage or toward your income tax.
If you are an experienced business owner or just getting started, a mortgage broker from Mortgage Sisters West is your best weapon. We have many banks to choose from and will access all the possible lending programs that are a right fit for you.