The client
An IT contractor in the Toronto area incorporated his consulting practice three years ago and, for the first time this past year, started paying himself a T4 salary out of the corporation rather than drawing income as a sole proprietor. On paper, a T4 looks like the simplest income document a lender can ask for. It is not, when the corporation issuing it is one the borrower owns and controls.
Business structure
Incorporated 3 years; T4 salary for 1 year
Prior years filed as a sole proprietor, same trade
Two-year average income
$152,000/year
$12,667/month, across the corp T4 year and the prior sole-prop T1s
Purchase
$700,000, Mississauga
10% down ($70,000)
Other debt
Car payment $520/month
Counted in TDS
The trade itself never changed — the same IT contracting work, for the same client base, before and after incorporation. Only the paperwork describing the income changed.
The problem
A T4 issued by a corporation the borrower owns and controls is treated as self-employed income in underwriting, not as ordinary employment income — the same lens that produces add-backs for other self-employed files — because the borrower, not an arm’s-length employer, decides how much salary to pay himself and when. That reopens the two-year income-history question that a straight T4 employee never has to think about, and with only one year of corporate T4s on file, the file looked thin on its own.
The prior years of sole-proprietor T1s existed and showed a consistent trade and comparable income, but they were filed under a different legal structure — a different name on the tax return — from the one year of corporate T4 income. Read in isolation, neither piece told the full two-year story on its own.
The numbers
The loan structure itself is a routine 90% LTV insured purchase, and against average new mortgage amounts in Canada the loan size is unremarkable. The work on this file was entirely in documenting the income behind it.
| Structuring the insured purchase | Amount |
|---|---|
| Purchase price | $700,000 |
| Down payment (10%) | −$70,000 |
| Base mortgage (90% LTV) | $630,000 |
| CMHC premium — 3.10% in the 85.01–90% LTV band, capitalized | +$19,530 |
| Total insured mortgage | $649,530 |
Checks along the way: the minimum down payment at this price is $45,000 — 5% of the first $500,000 plus 10% of the remaining $200,000 — comfortably cleared by the $70,000 actually put down.
| Rate & payment | Figure |
|---|---|
| Contract rate — 5-year fixed (illustrative, not a quote) | 4.39% |
| Minimum qualifying rate — greater of contract + 2% and 5.25% | 6.39% |
| Monthly P&I at the qualifying rate — the ratios run on this | $4,307 |
GDS and TDS on the two-year average
| Ratio | Monthly |
|---|---|
| P&I at the qualifying rate | $4,307 |
| Property tax | $450 |
| Heat (lender-standard estimate) | $150 |
| GDS vs. $12,667/mo two-year average income | 38.7% |
| Ratio | Monthly |
|---|---|
| Housing costs (as above) | $4,907 |
| Car payment | $520 |
| TDS vs. $12,667/mo two-year average income | 42.8% |
The solution
An FSRA-licensed Ontario mortgage agent built the file around continuity of the trade, not continuity of the corporate paperwork.
First, pulled the prior sole-proprietor T1s and Notices of Assessment for the years before incorporation, alongside the one year of corporate financials and T4 available since.
Second, got an accountant’s letter bridging the two structures. The letter confirmed the same IT contracting work continued across the incorporation, that the corporate T4 salary was a deliberate compensation decision rather than a change in what the business actually did, and stated the combined two-year average income.
Third, documented the two-year average explicitly as the qualifying figure, following the same pattern as a self-employed borrower on a two-year average, rather than letting a lender default to a single thin corporate-T4 year on its own.
The outcome
The file funded as an insured mortgage at 90% LTV, qualified on the documented two-year average of $12,667 a month — GDS 38.7%, TDS 42.8%, both inside CMHC’s insured ceilings.
| Cash due at closing (beyond the down payment) | Amount |
|---|---|
| Ontario land transfer tax on $700,000 — marginal brackets; no first-time-buyer refund for a repeat buyer | $10,475 |
| Ontario RST on the insurance premium — 8% × $19,530; the premium itself is capitalized, but the tax on it is cash at closing | $1,562 |
| Total cash due beyond the down payment (before legal fees) | $12,037 |
What to take from this file
- 01A T4 from a corporation you own is not the same as a T4 from an employer. Underwriting treats it as self-employed income and reopens the two-year history question.
- 02Stitching prior sole-proprietor T1s to a single year of corporate T4s, bridged by an accountant’s letter, can satisfy the same two-year continuity test a straight T4 employee never has to think about.
- 03The 90% LTV insured band and its premium apply the same way regardless of whether the income behind the file is salaried or self-employed. The complexity is upstream, in proving the income — not in the loan structure itself.
- 04Budget the RST on the premium separately from the premium itself. It is cash at closing and cannot be added to the mortgage.
Sources
Every regulatory figure in this file traces to one of these primary sources. Client details and anything that varies by lender are illustrative, as flagged below.
- ▸CMHC — Purchase (Mortgage Loan Insurance) — default-insurance premium schedule by LTV band (25-year amortization).
- ▸CMHC — CMHC Home Start — minimum down payment tiers (5%/10%) and the $1.5M insured price cap.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸CMHC — CMHC Reviews Underwriting Criteria — GDS 39% / TDS 44% maximums and the 600 credit-score floor for insured files.
- ▸Ontario.ca — Retail Sales Tax: Insurance and Benefits Plans — 8% Ontario RST on default-insurance premiums, cash at closing.
- ▸Ontario.ca — Calculating Land Transfer Tax / Land Transfer Tax Refunds for First-Time Homebuyers — Ontario's marginal land transfer tax brackets and first-time-buyer refund.
- ▸Provincial/territorial mortgage-broker legislation fetched directly (bclaws.gov.bc.ca, legisquebec.gouv.qc.ca, fcaa.gov.sk.ca, web2.gov.mb.ca, nslegislature.ca, assembly.nl.ca) plus FCNB's own site for NB and CanLII's index for PE — see notes for per-province method — provincial mortgage regulators and licence titles.
Illustrative in this file — lender-specific, not rules:
- ▸own-corp T4 treated under self-employed rules — classification policy varies by lender.
- ▸4.39% contract rate — illustrative, not a quote.
Authority & provenance
How this case file was built
We publish the origin, the verification method and the reviewer for every case file, so you can judge how far to trust it before you rely on it with a client.
Where it comes from
Derived from files handled by Treadstone’s fulfillment desk and from scenarios contributed by partner brokerages. Names, employers, exact amounts and dates are changed so no client or file is identifiable.
Provenance: Composite — a pattern seen repeatedly on fulfilled files, not a single transaction.
What is verified
Every regulatory figure traces to a primary source listed above and was checked against it on the date shown. The arithmetic is recomputed by machine on every rebuild.
Anything that varies by lender is labelled illustrative rather than stated as a rule.
Who reviewed it
Reviewed for Canadian regulatory accuracy before publication, and re-checked whenever a cited rule changes.
Reviewed by: Nicholas Parson, Treadstone Associates — reviews every case file before publication.
This case file is professional reference material for licensed mortgage professionals. It is not advice to a borrower, and it is not a lender commitment. Insurer rules, qualifying rates and provincial taxes change — confirm the current position with the insurer, regulator or lender before you rely on any figure here in a live file.