The client
A logging contractor working the harvest windows around Bathurst, with a spouse's T4 income supporting the household, wanted to buy a home closer to the harvest sites. The contractor's most recent tax year showed a net loss — the same year a new piece of harvesting equipment went into service.
Borrowers
One T4-salaried spouse, one logging contractor
T1 sole proprietorship, harvest-window seasonal
T4 income
$32,000 / year
$2,667 per month
Contractor T1 net income, Year 1
$58,000
Normal harvest season
Contractor T1 net income, Year 2
−$3,000
Net loss, most recent, after equipment purchase
New purchase
$255,000 detached, Bathurst
Property tax $210/mo; heat estimate $125/mo
Down payment
$25,500 — 10%
Under 20%, so the file must be default-insured
The contractor's two T1 years, before and after the CCA add-back:
| T1 net income | Year 1 | Year 2 |
|---|---|---|
| Net income before CCA add-back | $58,000 | −$3,000 |
| CCA claimed on new logging equipment | $0 | $41,000 |
| Net income with CCA added back | $58,000 | $38,000 |
The problem
The lender's underwriter averaged the two raw T1 years exactly as filed, including the loss year, and treated the result as evidence the business was struggling. A net loss is a hard thing to explain away in a mortgage file if nobody separates out why it happened.
The raw-income arithmetic
- ▸Two-year average, no CCA add-back: ($58,000 − $3,000) ÷ 2 = $27,500/yr — $2,292/mo
- ▸Combined with the $2,667/mo T4 income: $4,959/mo
- ▸TDS: 47.3% — against CMHC’s 44% maximum. Declined.
The loss wasn't a sign the contracting business had stopped working — it was $41,000 in Capital Cost Allowance on a new harvester, claimed in full the year it went into service. Once that non-cash deduction is separated from the business's actual cash results, the same year is a $38,000 profit, not a loss.
The numbers
At 10% down this is an insured purchase, so CMHC's maximums — GDS 39%, TDS 44% — are hard caps.
| Structuring the insured loan | Amount |
|---|---|
| Purchase price | $255,000 |
| Down payment (10%) | −$25,500 |
| Base mortgage (90% LTV) | $229,500 |
| CMHC premium — 3.10% in the 85.01–90% LTV band, capitalized | +$7,114 |
| Total insured mortgage | $236,614 |
| Rate & payments | Figure |
|---|---|
| Contract rate — 5-year fixed (illustrative, not a quote) | 5.09% |
| Minimum qualifying rate — greater of contract + 2% and 5.25% | 7.09% |
| Monthly P&I at the qualifying rate — the ratios run on this | $1,670 |
| Monthly P&I at the contract rate — what they actually pay | $1,388 |
The loss year, before and after the equipment add-back
The CCA add-back convention applies in full here — the equipment purchase is real, but the depreciation claimed against it is a non-cash deduction, not a cash loss.
| Income treatment | Raw T1 (loss year included) | With CCA added back |
|---|---|---|
| Two-year average, annual | $27,500 | $48,000 |
| Two-year average, monthly | $2,292 | $4,000 |
| Combined with the $2,667/mo T4 income | $4,959 | $6,667 |
| GDS | 40.4% | 30.1% |
| TDS vs. the 44% cap | 47.3% ✗ | 35.2% ✓ |
Adding back the equipment CCA turns a declined 47.3% TDS into an approved 35.2%, with real room under the cap.
The solution
A mortgage associate licensed under New Brunswick's Financial and Consumer Services Commission (FCNB) rebuilt the file around what actually happened in the loss year.
First, isolated the CCA claim. The equipment purchase invoice and the CCA schedule showed exactly how much of the reported loss was non-cash depreciation versus an actual cash shortfall — in this case, all of it.
Second, moved the file to a lender whose self-employed policy adds back CCA even in a year the net result is negative. Not every lender's system is built to add back CCA on a loss year specifically, which is exactly where this file had failed the first time — and exactly the kind of placement decision behind the share of Canadian mortgages brokers place.
Third, documented the equipment purchase itself so the underwriter could see the size and timing of the CCA claim matched a real capital asset, not an adjustment invented to fix the ratios.
With the loss year explained and the add-back documented, the insurer's approval followed the lender's.
The outcome & the closing math
Approved and funded: insured at 90% LTV, 25-year amortization, 5-year fixed term.
| Cash due at closing (beyond the down payment) | Amount |
|---|---|
| New Brunswick's flat 1% real property transfer tax on $255,000 | $2,550 |
| Legal fees, title insurance & adjustments | varies |
New Brunswick's transfer tax is a flat 1% of the purchase price, with no add-on insurance-premium tax the way Ontario charges RST; the lender also required evidence of funds to cover closing costs on top of the $25,500 down payment.
What to take from this file
- 01A net loss on a self-employed T1 needs a reason before it needs a decline. A single large capital purchase, fully deducted through CCA, can turn a genuinely profitable year into a paper loss.
- 02Not every lender adds back CCA on a loss year specifically. This file needed a lender whose policy explicitly covers that case, not just a standard positive-income add-back.
- 03The ratios run at the qualifying rate, not the contract rate. This file qualifies at 7.09% and pays at 5.09% — a $282-a-month gap.
- 04New Brunswick's transfer tax is a simple flat 1%. No brackets, no municipal add-on — one of the more straightforward closing-cost lines in the country.
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 Reviews Underwriting Criteria — GDS 39% / TDS 44% maximums and the 600 credit-score floor for insured files.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸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.
- ▸Real Property Transfer Tax Act, S.N.B. (via laws.gnb.ca) — New Brunswick's flat 1% real property transfer tax.
Illustrative in this file — lender-specific, not rules:
- ▸5.09% contract rate — rates move daily; not a quote.
- ▸full CCA add-back on the loss year — each lender publishes its own self-employed add-back policy.
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.