I was actually inquiring about investment income (cap gains, dividend and interest), not contracting income. The bank said they'd accept any income as long as it's demonstrably consistent over the last 2 years.
I was actually inquiring about investment income (cap gains, dividend and interest), not contracting income. The bank said they'd accept any income as long as it's demonstrably consistent over the last 2 years.
Mad Mike
Well-known member
It's NOA (Notice of assessment) that you have to produce, banks don't take tax returns as evidence.
For contractors and sole proprietors, this can hurt a bit because your deducted expenses drive down your net income when compared to being employed. For example, a programmer who makes $100K salary would have near zero deductions, whereas a contractor making $150K can deduct car, insurance, fuel, interest, travel, meals, cell phone, computers, home-office... If the contractor finds $60K of deductions by claiming expenses his salaried counterpart cannot claim, banks will see the salary guy in a better light.
Private lenders care a bit less.
Mad Mike
Well-known member
Yes -- annuity, interest, and dividends and 50% of reported rental income is typically viewed as stable. Capital gains... not so much.
My bank (BNS in this case) said cap gains count towards net income for qualifying for a mortgage. They made no distinction between cap gains and dividends/interest. I just showed them a copy of my last two tax returns, the mortgage officer glanced at it quickly and pushed it back with a, "Yeah, you're good. Don't worry about it."
This might have changed in the last 5 or so years.
When we just renewed our mortgage now and inquired about the HELOC/Second Mortgage the MCAP broker wanted to see both mine and my wife's tax refund summaries, not the NOAs.
Yeah, we never pursued the mortgage, but I did apply for one of those premium credit cards around that time, which required a minimum income. They also took a copy of my last year's tax return for proof. Not NOA.
A lot of what is asked depends on risk factors.
Insurance depends on how the underwriter sees your chance of causing them to pay out and how much. What are the chances of you doing damage and the potential cost of the damage? Any risk to life and limb is a big concern so bridge building, aviation, medical are pricy. What if an IT guy shuts down a system or misses a code? An engineer takes a number from the wrong column?
Incorporation distances your personal assets from a mistake but many want everyone involved in a project to be 100% insured. I started off the first six months without insurance "Protected by poverty". Once I started developing assets and getting insurance requests I ponied up. You might get a cheap incorporation XYZ1234Canada Inc operating as George_ for a grand or so.
Incorporating can let you play with taxes a bit to minimize the hit. If you can leave the money in the company it's a bit like a RRSP with a small bit of tax paid up front. However that means you get hit very hard when you take out a lump for a house and the $100,000 K you want for a downpayment gets added to your regular income. A good accountant can soften the blow a bit.
Beware the company car and taxable benefits. If you are driving your own modest vehicle, paying yourself mileage may be simpler. There were standby charges that made leased and company owned vehicle costly in after tax dollars. I've driven free when I was driving junkers. Is a junker acceptable for image?
Commercial vehicle insurance has many flavours. I got far better rates as an artisan than a contractor. Contractors run from job to job. Artisans drive to a site and stay there laying brick etc.
Do you have to spend much to get rolling and what is payback time? Will you get hammered if and when you quit?
Legal fees. A bit to incorporate and maybe a bit for year end but does the business tend to be very legal paper heavy. Will that require a lot of legal time or can you handle it your self?
Insurance depends on how the underwriter sees your chance of causing them to pay out and how much. What are the chances of you doing damage and the potential cost of the damage? Any risk to life and limb is a big concern so bridge building, aviation, medical are pricy. What if an IT guy shuts down a system or misses a code? An engineer takes a number from the wrong column?
Incorporation distances your personal assets from a mistake but many want everyone involved in a project to be 100% insured. I started off the first six months without insurance "Protected by poverty". Once I started developing assets and getting insurance requests I ponied up. You might get a cheap incorporation XYZ1234Canada Inc operating as George_ for a grand or so.
Incorporating can let you play with taxes a bit to minimize the hit. If you can leave the money in the company it's a bit like a RRSP with a small bit of tax paid up front. However that means you get hit very hard when you take out a lump for a house and the $100,000 K you want for a downpayment gets added to your regular income. A good accountant can soften the blow a bit.
Beware the company car and taxable benefits. If you are driving your own modest vehicle, paying yourself mileage may be simpler. There were standby charges that made leased and company owned vehicle costly in after tax dollars. I've driven free when I was driving junkers. Is a junker acceptable for image?
Commercial vehicle insurance has many flavours. I got far better rates as an artisan than a contractor. Contractors run from job to job. Artisans drive to a site and stay there laying brick etc.
Do you have to spend much to get rolling and what is payback time? Will you get hammered if and when you quit?
Legal fees. A bit to incorporate and maybe a bit for year end but does the business tend to be very legal paper heavy. Will that require a lot of legal time or can you handle it your self?
I think we’re over complicating the situation for @george__ …
First get the job, figure out whether you’re covered under your employers insurance, and then take it from there.
Depending on the contract you may be covered under the new employers umbrella. We don’t have this info, you may not either yet.
First get the job, figure out whether you’re covered under your employers insurance, and then take it from there.
Depending on the contract you may be covered under the new employers umbrella. We don’t have this info, you may not either yet.
I can go on for days on the different tax and admin implications.
One of the thing that I don't think have been mentioned yet is whether you would be deemed as "Employee or Self-employed":
www.canada.ca
One of the thing that I don't think have been mentioned yet is whether you would be deemed as "Employee or Self-employed":
Employee or Self-employed - Canada.ca
This guide will help you understand how to determine a worker's employment status.
Relax
Well-known member
That's per month, right?
No. Small company. More revenue, pay more.
Mad Mike
Well-known member
The tax refund summary CRA sends you is your NOA.
Tax return is your filing, you could make that up.
The evidence a lender asks for can vary greatly. Private lenders are not as by the book as banks, banks also treat well known customers differently than borrowers new to them.
I've seen banks lend students with no income bags of cash based on knowing their parents. I've also seen wealthy people get grilled on credit card applications.
Understood. But it's not what they asked for. They wanted the full form tax form we submitted, not the NOA.
We've had to issue NOAs before when we started the mortgage, but not for this early renewal.
Mad Mike
Well-known member
Rates are risk-based -- surgeons pay higher rates than barbers -- your rates will depend on your business. Our small biz pays $840/year for 1M E&O on 1, and 2M GL that covers 4.
Mad Mike
Well-known member
That may be the case for unsecured or higher-risk lending, not generally for everyday high ratio or conventional mortgages.
Private lenders consider weight Character, Capacity, and Capital more favorably, recognizing tax and income advantages of small businesses. Banks understand this too but operate by a procedure book that makes it tougher for them. This makes banks tougher for second mortgages, (seconds, past CP &bankrupts, commercial real estate, rental and rec properties)
A good relationship with your local big bank manager helps, they do have a lot of pull with underwriters and can make the case for you.
My experience as well.
The full-form tax return has a lot more information about the nature of your income, vs a 1 or 2 page NOA summary.
That's why they wanted it. To see where / how the money is flowing for my wife's business.
Strange all they have ever wanted from me was the Noa
Sent using a thumb maybe 2
Sent using a thumb maybe 2
