If you run a business, you have two incomes. There’s what the business actually generates and supports your life with, and there’s the number on your tax return after your accountant has done a good job.
A good accountant’s whole mandate is to make that second number smaller. Mortgage lenders read the second number.
That’s the entire puzzle, and the good news is that it’s a well-worn one with established solutions.
The standard starting point
Most lenders begin with line 15000 of your T1 General — total income — and average your two most recent years. Two years smooths a strong year against a quieter one.
A detail worth knowing early: when your most recent year is the higher of the two, many lenders will still use the average. So a strong year takes time to fully count, which matters if you’re planning a purchase around one.
Add-backs
Not every deduction on your return represents money that left your pocket. Underwriters know this, and the mortgage insurers explicitly allow for it.
The items that come up most:
- Capital cost allowance. Depreciation is an accounting entry, not cash. It’s the most routinely accepted add-back there is.
- Business-use-of-home. If you’re claiming part of a home you already live in, the underwriter is often already counting that housing cost elsewhere.
- One-time expenses. A single large equipment purchase isn’t your ongoing cost structure — but it needs documenting, not just asserting.
Add-backs are a documentation exercise rather than a negotiation. A short letter from your accountant identifying each item and confirming it’s non-cash or non-recurring turns a claim into evidence. On any business-for-self file, that letter is usually the highest-value document in the package, and it’s one of the first things I ask for.
Where retained earnings come in
If you’re incorporated and you’ve left profit in the company, several lenders will consider those retained earnings as available income — where you hold a controlling interest and the financial statements show the business can sustain the distribution.
Not every lender does this, and among those that do, the treatment varies a lot. That makes it a lender-selection question more than a paperwork question, which is exactly the kind of thing a broker is useful for.
You may belong at an A lender
There’s a persistent assumption that self-employed automatically means alternative lending. It doesn’t. A business owner with two clean years, tidy financials and reasonable add-backs often fits an A lender perfectly well — banks, credit unions and monolines all write these files.
BC credit unions deserve a specific mention. They’re provincially regulated, they’re frequently more comfortable with an owner-operator’s financials than a national bank’s centralised underwriting is, and in the Okanagan they’re a genuinely strong option.
And if you’re in year one
Two years is the standard, but it isn’t an absolute wall. CMHC’s own guidance recommends 24 months while expressly allowing for less where there are supporting factors: acquiring an established business, cash reserves, predictable earnings, relevant training, or a demonstrated history of managing credit.
The pattern I see most often is someone who spent years employed in the same field and then went out on their own. That continuity carries real weight with an underwriter — but only if it’s written into the submission rather than left for someone to infer.
If you’re self-employed and thinking about a purchase or a refinance, send me two years of T1 Generals and your Notices of Assessment. I’ll tell you what the number looks like and which lenders read it most favourably.