The Self-Employed Dilemma
Michael Hallett • July 7, 2015
You're likely asking yourself, what is the dilemma that self-employed workers face? Well, with more and more Canadians joining the ranks of the self-employment every year one has to ask themselves how they are going to tackle the age old question, how much does one write off vs how much income does one claimed on their taxes. We all want to earn as much money as possible and pay as little income tax as required.
This was my train of thought until the topic of 'paying taxes' was brought to my attention by a friend that's an accountant. As he said, paying income tax isn't such a horrible thing, in fact it's a necessity which provides for our infrastructure and without it the 'world' we know would be drastically different. Here was the response from him after I re-posted a reference to INCOME TAX RELIEF DAY that I saw on social media.
"I would actually look at it more positively and say that I/we spent this money to live in a great country, province and municipality and its worth every penny in taxes spent. I will guarantee you there are billions of people on this planet that would switch positions with us in a second and remember this so called date (INCOME TAX RELIEF DAY) is based on the average Canadian family income of $45,000 and is based on all taxes including not just income taxes, but property tax, sales taxes, health taxes, fuel taxes and much more. So technically not all of it is going to Canada Revenue Agency (CRA). Some of it is going to municipal and Metro Vancouver. For more information go to the Fraser Institute website https://www.fraserinstitute.org/research-news/display.aspx?id=22954."
After reading over this message, it got me thinking about how some self-employed people report their taxes and the effect that it has on their chances of qualifying for a mortgage. Besides the duty to provide to our country, we all have a personal desire to provide as much as possible for our family. It's a so-called 'tug-of-war' of who gets your money and how much of it. Here's where the dilemma get's complicated if you want to borrow money from a lender to purchase residential real estate.
The federal Government of Canada regulates the CRA as well as the lending criteria and policies followed by ALL the 'A' lenders. 'A' lenders are our chartered banks and non-bank or monoline/investment lender. We also have credit unions that are provincially regulated but follow the CMHC lending criteria, which is federal. Having more 'cash' in your pocket actually allows you to borrow less. Showing more income claimed which requires you to pay more tax allows you to borrow more money if desired. 'A' Lenders assess their risk management for lending money to borrowers on historical earning and in this case if one is self-employed then they require a 2 year average based on T1 Generals or in some cases Notice of Assessments (NOA).
It's a CATCH 22 and you (and your qualified accountant) need to decide which path you're going to follow; write off maximum expenses and claim 'little' income or claim a 'healthy' income and pay more income. Neither is right or wrong.
Upon getting the urge to buy residential real estate a detailed conversation on how 'your' is structured should be had with their Mortgage Expert and Certified General Accountant. Once you have chosen which style of accounting your business will adopt, you just have to be prepared to follow the lending guidelines. And plus, it's really not that bad either way.
Let's face it, everyone wants the lowest rate possible when it comes to their mortgage. As a Mortgage Expert, it's something that I seek for every client. But not all clients are eligible for the lowest rate for a number of different reasons, 2 main reason are because of credit blemishes and of course lack of income reported.
Business Case
The following is a fictitious scenario that represents a self-employed person that writes down ones expenses in order to minimize CRA income tax.
Jane is a business owner in Vancouver. She has a modest business that is experiencing growth year after year. Jane enjoys the many perks of being a business owner, especially the tax breaks that come along with it! Since Jane is able to work with her certified accountant, and considerably write down her income, she often saves thousands of dollars a year on taxes.
Jane would like to purchase a new home. She has a 20% down payment to place on a home, and knows that she grosses more than $100,000 per year in her business. However, since she currently writes down her income to $20,000 per year, her Mortgage Expert has just informed her that she will need to state her income with a 'Non-Prime' or 'B' lender for approval.
Now if Jane claimed $100,000 per year for the last 2 years, she may qualify for the best rate out there from an 'A' lender. However, let's look at what that really means:
Income claimed $100,000/year $20,000/year
Taxes paid $ 25,060/year $1,761/Year
Jane has saved $23,299 per year because of the tax laws the government has legislated for self-employed business owners. Now let's compare the interest on a 'typical' verified-income loan, and a 'non-prime' stated-income loan.
Loan Type 'A' 'B'
Mortgage $200,000 $200,000
Rate 2.69% 4.50%
Term 1 year 1 year
Interest per Term $5,281 $8,826
** For ease of comparison to BC yearly tax rate-- 1 year term has been used. Rates are approximations for example purposes.**
Jane is paying $3,545 more in interest per year, but with her income tax savings is $23,299 per year. She is actually saving $19,754 per year more than the typical 'verified-income' Employee that was able to receive a mortgage interest rate of 2.69%.
With all entrepreneurs there is one thing in common they are all savvy and driven to succeed, or fail, on their own terms.
It takes an extreme amount of hard work to get a business from the infancy stage to a self sufficient entity that produces a constant and steady flow of revenue. Business owners all want to save money while at the same time earning and establishing a presences in their chosen space. Business financials are all structured differently and depending on how one chooses to operate will dictate how they can proceed once it's time to seek residential real estate financing.
If you are self-employed, make sure to consult with your Mortgage Expert to find out how your mortgage can tailored. Every mortgage scenario is completely different from the next, so make sure your fits correctly and you are informed before you start the financing process.
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Playing in the forest today. Always fun exploring. #mountainbikingmortgagebroker
Mortgage Brokering meets mountain biking and craft beer. A couple months ago I set for a bike ride with the intention of answering few mortgage related questions, mission accomplished. Any good bike ride pairs nicely with a tasty beer which we enjoyed @parksidebrewery. Hope you see the passion I have for brokering, biking and beer. @torcabikes #mountainbikingmortgagebroker
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Spotted a ski-bunny today @kirstinjhallett so I trapped ‘er. 📸 credit @troy.hartley
Aidan leading the pack up the Lemming Line in seek of fine fresh powder.
Beautiful British Columbia! A cold winter day at its finest.
Aidan and I braved the -19C temperature and windy conditions for the boot to knee deep turns...it was a no-brainer.
Happy Holidays. Seasons Greetings. Merry Christmas. All the best from Kirstin, Aidan and Michael. Enjoy your family time.
Snow report for today was boot to knee deep in places. Simply an awesome day rippin’ with the kids, I had to show them that I still got it. 📷 credit @jhalskiing
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Fresh wood in the morning...where is this treasure trail going to take me?
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Extreme tubing, watch until the end. Aidan manages to hold on.
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Good thing there were a few other vehicles with winches on the front.
He was OK, thumbs up. The roll cage and 5-point seat belt did its job.
My sons intro to operating a side-by-side on his own. Watch to the end.
The Lookout over looking Tulameen BC. Took some 4x4ing to get there, but we did it.
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Impromptu ride on Burke. I dreamed of the day Aidan would ask to go for a ride...today was the day, “Dad do you want to go for a ride?” Heck ya, let’s go! This was a fun feature at the end.
An afternoon of exploring the Stave Lake zone. Planning to return soon once the snow melts to get some vertical.
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This would have been a fun stunt once upon a time!
And so it begins...another tool for adventuring! So different so fun!
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The snow report suggested 8 cm had fallen, it was more like 25-30 cm.
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An epic day. Everything was perfect. Depth of Snow. Visibility. Temperature. Even the company.
In the green room today on the best coast amidst winter...not a bad place. 📷 @dgm_images
I saw this hat on Instagram, that very moment I knew I needed it. As a BC boy born and bred The Outdoorsman hat needed to be added to my collection. As someone who loves BC and most things outdoor, I’m now glad I have a cool hat to wear and fly the flag of BEAUTIFUL BRITISH COLUMBIA. It will be in my bag for all post-exploration celebratory cold pints. If you want to check them out or add one to your collection go to @nineoclockgun ...and yes my facial hair matches the hat as well.
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My ski buddy getting untracked turns. It was knee to thigh deep all day for him, only shin to knee for me.
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This is a great start to the day!
No better way to share the great outdoors than with friends. @troy.hartley @mike_ilic711 @j_penner70
The ski out back to the truck was more of an adventure than we bargained for...
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Thank god we are all narcissistic and have the ability to take pictures of ourselves 🤪. This is taken pre-turkey dinner, I’m sure we will all be back in our comfy clothes soon! Merry Christmas!
The crew shredding some turns , it was a 23,000 vertical foot kind of day.
Happy belated Hanukah, Merry Christmas and Happy Holidays to all. Be sure to enjoy the festivities.
Top of Swan Falls. I’ve said it many times before and I will say it again, our license plates say it all. BEAUTIFUL BRITISH COLUMBIA. #gooutside
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Yet another reason (unlimited really...) of why the Left Coast is the best coast! @tami0777
Moss, a non-vascular plant and Mother Nature’s carpet reclaiming the forest.
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Just follow the brown line switchbacking through Mother Nature. She’s so damn beautiful!
Day 3 for Black Magic was a bit snowier than initially expected. Thanks to the person who took a few minutes to build a snow creature.
Beauty day for a ride! I should have considered bringing my touring skis.
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Oh boy! See a toy...buy a toy! New steed! YT Capra Pro 29 hitting the trails soon.
A tasty beverage while on the water yesterday from @backcountrybrewr and @backcountrybrewing
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Whistler slick rock is my favourite.
Wood to wood gap in Whistler.
Passing underneath the Ironworkers Memorial Bridge on the return journey of dinner-by-boat. No filter.
And now the training starts for Paris 2024 summer olympics.
Archery target: before, during and finished.
Aidan’s first day in the Whistler Bike Park, he had a blast and we rode trails I didn’t think we’d ride 😳. I’m sure we’ll return soon enough.
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When the opportunity presented itself, I couldn’t pass up one of my favourite slick rock rolls.
Pre-dinner antics...it’s totally safe!
Aidan is captaining the watercraft, mom in just the passenger. Kalamaka Lake.
#Drewmboat camo @parksidebrewery
Safety first when roasting marshmallows.
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Raw kale. Just not the same as a kale caesar salad.
Saratoga Beach fire.
Canadian tuxedo.
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Going vertical. #slickrock
I have a ski buddy, now it’s time to train a biking buddy.
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Aidan and a couple buddies are now members at the Pitt Meadows Golf Club. @greggmcnally @genevemcnally @wendy22boddy @jaradboddy @kirstinjhallett
Raw and unedited. Old school skinny with a drop at the end.
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Zoa Peak, Coquihalla summit 1,500 vertical metres of skiing.
Distancing myself from the real world!
The dry land version of the @andrei_svechnikov37 lacrosse-style goal executed Aidan.
Skis or bike? Bike. The snow won’t stop me.
Does anybody need or want any firewood? It’s free...you come pick it up.
I needed to buck up the trees they fell in the last wind storm. Task complete.
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Buying a Home? Follow These 6 Key Steps for a Smooth Experience Buying a home is likely one of the biggest financial decisions you’ll ever make. It’s exciting—but it can also be overwhelming, especially when it comes to understanding how mortgage financing works. To help make the process smoother (and far less stressful), here are six essential steps every homebuyer should follow: 1. Start With a Mortgage Professional—Not MLS It’s tempting to start your home search by scrolling through listings and booking showings—but the real first step should be speaking with an independent mortgage professional . Unlike a bank that offers only one set of products, an independent mortgage expert has access to multiple lenders and options . That means better advice, better rates, and a better chance of finding a mortgage that truly fits your needs. 2. Build a Personalized Mortgage Plan Unless you’re buying your home with cash, you’ll need a solid financing strategy. That means: Reviewing your credit score Running affordability calculations Exploring different mortgage types, terms, and features Understanding down payments and closing costs The sooner you start planning, the more confident you’ll feel. Don’t wait until you’ve found the “perfect” property— get ahead of the process now . 3. Figure Out What You Can Actually Afford What a lender says you can borrow doesn’t always match what you can comfortably pay each month. Take a close look at your budget, lifestyle, and spending habits. Think about how your mortgage payments, property taxes, utilities, and other costs will fit into your everyday cash flow. Avoid the stress of being house-poor by knowing your real-life affordability , not just your paper pre-approval. 4. Get Pre-Approved the Right Way A true mortgage pre-approval isn’t just entering numbers into an online calculator. It means: Completing a mortgage application Submitting all your required documentation Having a mortgage professional fully assess your file When you’re officially pre-approved, you’ll shop for homes with confidence , knowing what you qualify for and that you’re financially ready. 5. Submit Your Documents Promptly and Stay Flexible Once you find a property and your offer is accepted, time is of the essence. That’s when all the upfront work you’ve done really pays off. Be ready to: Provide additional documentation if requested Respond to your mortgage professional quickly Stay flexible and proactive throughout the approval process Your lender needs to verify everything before finalizing the loan, so staying organized is key. 6. Don’t Make Big Financial Changes Before Closing Once you’ve secured financing and waived your conditions, freeze your finances until after you get the keys. Seriously—don’t: Change jobs Apply for new credit Take out a loan Make a large withdrawal Even small changes can throw off your approval. Keep everything status quo until you officially take possession. Recap: 6 Steps to a Smooth Home Purchase Connect with an independent mortgage professional Create a mortgage plan early Know what you can afford (not just what you qualify for) Get fully pre-approved Stay on top of documentation Avoid major financial changes before possession Ready to Buy with Confidence? If you’re thinking about buying a home—or just want to know what’s possible—let’s talk. I’ll help you map out a personalized plan that makes your homebuying journey feel simple, strategic, and stress-free. Reach out anytime. I’d love to help you get started.
Cashback Mortgages: Are They Worth It? Here’s What You Need to Know If you’ve been exploring mortgage options and come across the term cashback mortgage , you might be wondering what exactly it means—and whether it’s a smart move. Let’s break it down in simple terms. What Is a Cashback Mortgage? A cashback mortgage is just like a regular mortgage—but with one extra feature: you receive a lump sum of cash when the mortgage closes . This cash is typically: A fixed amount , or A percentage of the total mortgage , usually between 1% and 7% , depending on your mortgage term and lender. The money is tax-free and paid directly to you on closing day. What Can You Use the Cashback For? There are no restrictions on how you use the funds. Here are some common uses: Covering closing costs Buying new furniture Renovations or home upgrades Paying off high-interest debt Boosting your cashflow during a tight transition Whether it’s to help you settle in or catch up financially, cashback can offer a helpful buffer— but it comes at a cost . The True Cost of a Cashback Mortgage Here’s the part many people overlook: cashback mortgages come with higher interest rates than standard mortgages. Why? Because the lender is essentially advancing you a small loan upfront—and they’re going to make that money back (and then some) through your mortgage payments. So while the upfront cash feels like a bonus, you’ll pay more in interest over time to have that convenience. Breaking Down the Numbers It’s hard to give a blanket answer about how much more you’ll pay since it depends on: Your interest rate The cashback amount The mortgage term Your payment schedule This is why it’s important to run the numbers with a mortgage professional who can help you compare this option with others based on your personal financial situation. Are You Eligible for a Cashback Mortgage? Not everyone qualifies. Cashback mortgages generally come with stricter requirements . Lenders often want to see: Excellent credit history Strong, stable income Low debt-to-income ratio If your mortgage file includes anything “outside the box”—like being self-employed or recently changing jobs—qualifying for a cashback mortgage might be tough. What If You Need to Break the Mortgage? This is one of the biggest risks with cashback mortgages. If your circumstances change and you need to break your mortgage early, you could be on the hook for: Paying back some or all of the cashback you received, and A prepayment penalty (typically the interest rate differential or 3 months’ interest—whichever is higher) That can be a very expensive combination. So if there’s even a chance you might need to sell, refinance, or move before your term is up, a cashback mortgage might not be the best fit. Should You Consider a Cashback Mortgage? Maybe—but only with eyes wide open. Cashback mortgages can be helpful in the right scenario, but they’re not free money. They’re a lending tool that benefits the lender , and the key is knowing exactly what you’re agreeing to. Final Thoughts: Talk to an Expert First Choosing the right mortgage isn’t just about the lowest rate or the biggest perk—it’s about making a choice that fits your whole financial picture. If you’re considering a cashback mortgage, or just want to explore all your options, let’s talk. As an independent mortgage professional , I can help you weigh the pros and cons of various products, so you can make a confident, informed decision. Have questions? I’d be happy to help—reach out anytime.
