The client
A licensed home daycare operator in Winnipeg, sole proprietor, six licensed spaces, T1 net income averaging $3,875/mo over two years after legitimate T2125 deductions. Her spouse earns $3,400/mo on T4. They wanted to buy a $335,000 home at 10% down.
Borrower
Licensed home daycare, sole proprietor
6 licensed spaces
Spouse's income
$3,400/mo T4
Two-year net income
$42,000 then $51,000
Average $3,875/mo, after T2125 deductions
Standard add-backs
CCA $6,000/yr + home-office $4,800/yr
Illustrative, standard self-employed convention
New purchase
$335,000, Winnipeg
Property tax $270/mo; lender-standard heat $120/mo
Down payment
$33,500 — 10%
Two competing gross-up figures, checked against what six spaces can actually generate:
| Gross-up method | Monthly income |
|---|---|
| First lender: CCA + home-office + vehicle add-backs | $5,225 |
| Licence's own theoretical ceiling (6 spaces × $800/mo) | $4,800 |
| Corrected: CCA + home-office add-backs only | $4,775 |
The problem
A first lender grossed the reported net income up with the standard CCA and home-office add-backs, then added a third, non-standard vehicle add-back on top — producing $5,225/mo. That figure is higher than six licensed spaces at $800 a month each could ever generate, even at full enrolment, every single day, with no closures for statutory holidays, illness or professional development days.
Why the number failed a basic sanity check
- ▸Licence capacity: 6 spaces × $800/month each = $4,800/mo theoretical ceiling at 100% enrolment, every day.
- ▸First lender's grossed-up figure: $5,225/mo — above the ceiling itself.
- ▸No home daycare licensed for six spaces can produce more revenue than six spaces, fully booked, generate.
The reported net income and the standard add-backs were never the problem — the third, non-standard vehicle add-back pushed the total past what the business's own licence made physically possible, a red flag no ratio calculation alone would have caught.
The numbers
At 10% down this is an insured file, so CMHC's 39%/44% caps apply directly.
| Structuring the insured loan | Amount |
|---|---|
| Purchase price | $335,000 |
| Down payment (10%) | −$33,500 |
| Base mortgage (90% LTV) | $301,500 |
| CMHC premium — 3.10% in the 85.01–90% LTV band, capitalized | +$9,346 |
| Total insured mortgage | $310,846 |
| Rate & payments | Figure |
|---|---|
| Contract rate — 5-year fixed (illustrative, not a quote) | 4.69% |
| Minimum qualifying rate — contract + 2% | 6.69% |
| Monthly P&I at the qualifying rate — the ratios run on this | $2,118 |
| Monthly P&I at the contract rate — what she actually pays | $1,753 |
GDS and TDS on the defensible figure
| GDS | Monthly |
|---|---|
| P&I at the qualifying rate | $2,118 |
| Property tax | $270 |
| Heat (lender-standard estimate) | $120 |
| Housing $2,508 ÷ income $8,175 (defensible add-back + spouse) → GDS 30.7% | ✓ |
The standard CCA and home-office add-backs alone were enough to fund the file comfortably — the vehicle add-back was not just unnecessary, it was the reason the file needed a second look at all.
The solution
A mortgage broker licensed under Manitoba's Registrar re-ran the gross-up before letting the file go to underwriting on the inflated figure.
First, dropped the vehicle add-back. The business has no separate commercial vehicle — the operator's personal car is used for supply runs, not a dedicated business asset, so a full vehicle add-back was never a standard, defensible claim for this file.
Second, sanity-checked the resulting $4,775/mo figure against the licence's own capacity. Six spaces at an average local fee of $800/month produce a $4,800/mo theoretical ceiling — the corrected gross-up sits comfortably under it, which a number above the ceiling never could.
Third, submitted the file with the sanity check shown, not just the final number, so the underwriter could see the corrected figure was checked against a real, physical constraint on the business.
The outcome & the closing math
Approved and funded insured at 90% LTV, 25-year amortization, on the corrected $4,775/mo add-back figure. Manitoba charges no Retail Sales Tax on the default-insurance premium — that exemption has applied since July 2020 — but its land transfer tax still applies to the purchase itself:
| Cash due at closing (beyond the down payment) | Amount |
|---|---|
| Manitoba land transfer tax on $335,000 — marginal brackets, no first-time-buyer rebate | $4,350 |
| Legal fees, title insurance & adjustments | varies |
No RST applies to the insurance premium in Manitoba, unlike Ontario or Quebec, so the $9,346 premium adds no separate tax line at closing.
What to take from this file
- 01Sanity-check a self-employed gross-up against a physical constraint on the business, not just the ratio math. A licensed daycare's own space count is a hard ceiling on possible revenue.
- 02Standard add-backs are standard for a reason. CCA and home-office add-backs are broadly defensible; a vehicle add-back on a personal, non-dedicated vehicle usually is not.
- 03A grossed-up number that exceeds a business's theoretical maximum revenue should never reach underwriting unquestioned. That is a data-integrity problem, not a borderline ratio.
- 04Manitoba's RST exemption on default-insurance premiums is a real, dated policy — worth confirming against the current rules rather than assuming Ontario's or Quebec's tax treatment applies everywhere.
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.
- ▸Government of Manitoba — Land Transfer Tax — Manitoba's land transfer tax brackets (no first-time-buyer rebate).
- ▸Government of Manitoba, Manitoba Finance Taxation Division — Notice RST 20-04, "Removal of RST from Residential and Business Property Insurance" (Issued April 2020) — Manitoba charges no retail sales tax on default-insurance premiums (since July 2020).
- ▸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:
- ▸4.69% contract rate — rates move daily; not a quote.
- ▸the vehicle add-back and the $800/space fee assumption — each lender sets its own add-back policy, and the per-space fee is an illustrative local figure, not a published rate.
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.