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  • Writer's pictureNeil Joseph

Empowering Self-Employed borrowers: Maximum Mortgage at Minimum Income Tax

Updated: Apr 10

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As a self-employed individual or business owner, the path to securing a mortgage for your personal residence or investment properties has often feel like navigating a maze of stringent requirements and hurdles. Traditional prime lenders, typically the big banks, rely heavily on personal income tax returns to assess your income and determine your eligibility for a mortgage. This approach can pose challenges for self-employed individuals and business owners who have the freedom to pay themselves a lower wage and share of profits to maximize business growth, savings, and tax efficiency.  However, the landscape is evolving, and there's a newfound advantage that can turn the tables in favor of entrepreneurs and self-employed professionals.


Enter the alternate lender—a beacon of opportunity for self-employed professionals and business owners alike. Unlike prime lenders, alternate lenders take a different approach to income assessment, often relying on bank statements rather than personal income tax returns. This subtle yet significant distinction can make all the difference for self-employed and business owners seeking a mortgage and without having to draw a bigger personal income than is really required for their lifestyle.


But what does this mean in practical terms?


Consider John, a Cyber Security Consultant with over a decade of industry experience. Initially employed full-time, he transitioned to a having his own consulting firm, commanding an impressive hourly rate. Operating through his corporation, John earns a substantial $300,000 annually before corporate taxes by providing his services to several clients. With minimal business expenses given his extended contacts in the industry, he retains over $100,000 in profit within the corporation yearly, wisely investing for future growth while minimizing personal tax liabilities.


Despite his prudent financial approach, John encounters challenges when seeking a mortgage through traditional lenders. While his business thrives and his income remains robust, his conservative personal income strategy—drawing a modest $90,000 annually to cover personal expenses—restricts his borrowing capacity due to conventional lenders' reliance on tax return documentation. 


Here's where the alternate lender steps in.

By evaluating John's business revenue and expenses through bank statements rather than focusing solely on personal income tax returns, an alternate lender can paint a more accurate and favourable picture of John's financial situation. This approach allows John to secure a mortgage that aligns with his true financial capabilities, without the need to unnecessarily increase his personal income.


Let’s compare using a scenario.

  • Imagine John's eyeing a $1,000,000 property, seeking an $800,000 mortgage. To meet Prime Lender criteria, a minimum personal income (T1 General line 15000) of $150,000 to $160,000 for the past two years is essential. Conversely, alternate lenders disregard personal income (T1 General line 15000), enabling him to draw less than $90,000 if desired, to qualify for the same amount.

  • Opting for a $90,000 personal income incurs a tax liability of $18,500 (considering T4 income), compared to $42,750 of tax for $150,000 T4 Income in Ontario. That's a staggering $24,250 annual tax difference and could be larger!

  • Moreover, despite the slightly higher interest and 1% lender fee — or around $11,750 higher annually for a 5-year term with an alternate lender—compared to Prime Lenders, John could still save about 50% or $12,500 each year considering tax, interest expenses and fees!  Isn’t that just amazing???


Working with a knowledgeable mortgage broker who understands the nuances of your business, revenue, and expense structure is crucial in leveraging the benefits of alternate lending. A skilled broker can craft a compelling narrative that presents your financial situation in the best possible light to lenders, without resorting to tactics that may seem questionable or sleazy. By building a strong case based on sound financial principles and transparent communication, you can increase your chances of securing a mortgage that meets your needs and real estate goals while saving unnecessary taxes.


In conclusion, for self-employed individuals and business owners, alternate lending offers a gateway to mortgage opportunities that may have seemed out of reach with traditional prime lenders. By leveraging bank statements instead of personal income tax returns, self -employed like yourself can get the maximum mortgage while paying minimum income tax, all while working with a trusted mortgage broker who has your best interests at heart.


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