Calculating self-employed income from a T1 and T2: the lines that matter, step by step.

A sole proprietor or unincorporated self-employed borrower reports business income on their personal T1 General using Form T2125, Statement of Business or Professional Activities. The net result of that form flows into Line 15000 (total income) and, after allowable personal deductions, Line 23600 (net income) on the same T1.

The practical starting point for a lender is usually Line 15000 or Line 23600 from each of the two most recent Notices of Assessment, averaged rather than taken from a single year — which rewards a borrower with a steady or growing trend over one unusually strong year that looks like an outlier.

An incorporated borrower has two separate income pictures to reconcile, not one. Their personal T1 shows only what the corporation actually paid them — salary, dividends, or both — while the corporation's own T2 Corporation Income Tax Return shows the business's net income whether or not any of it was paid out to the owner that year.

On the T2, Schedule 1 reconciles accounting net income (carried in from Schedule 125) to net income for tax purposes, with the reconciled figure available at the top of Schedule 1. A borrower who left income inside the corporation rather than paying it out to themselves can show modest personal T1 income alongside a materially stronger T2 net income — which is exactly the gap a lender's underwriter is trying to understand when they ask for both returns rather than just one.

Because a self-employed borrower's accountant is typically optimizing the return to minimize tax rather than maximize the mortgage-qualifying figure, CMHC's Self-Employed mortgage loan insurance product explicitly allows two routes to a more realistic income figure: a flat 15% gross-up on the declared income, or an itemized add-back approach that adds specific eligible deductions (non-cash items like amortization/CCA are the classic example) back to the declared figure.

These two routes aren't stacked together — a file typically uses one or the other, whichever the lender's program specifies or whichever produces a more defensible, better-documented number for that particular business. Uninsured lenders aren't bound by CMHC's specific 15% figure and may apply their own gross-up or add-back policy instead, so the exact treatment should be confirmed with the individual lender before it's built into a client conversation.

CMHC's program guidance recommends a minimum of roughly 24 months operating the business, or equivalent experience in the same line of work, as the benchmark for a straightforward file. Borrowers below that threshold aren't automatically disqualified — factors like an acquired, already-established business, cash reserves, and a demonstrated credit management history can support a file that's newer than the recommended benchmark.

In practice, this means the two-year averaging convention described above and the 24-month operating-history benchmark point at the same underlying preference: lenders want a track record, not a single good year, whichever tax return the income happens to live on.

Two illustrative borrowers, same declared personal income, different structures, to show why the document stack differs:

The incorporated example is the one that most often produces a lower-than-expected pre-approval when only the personal T1 is reviewed — which is exactly why requesting both returns, not just one, is standard practice on any incorporated self-employed file.