The client
A sole proprietor running a small mechanical/trades business in the Moose Jaw market, Saskatchewan — six years in operation, a steady client base, no employees. His only debt is a $300-a-month vehicle loan, paid on time every month. On paper, this should have been a straightforward insured purchase.
Borrower
Sole proprietor, 6 years in business
Mechanical/trades contractor, no employees
Reported income
$3,400/mo (T1 line 13500)
The figure the bank read directly off the return
Existing debt
$300/mo vehicle loan
Clean repayment history
New purchase
$214,000, Moose Jaw
Property tax $175/mo; lender-standard heat estimate $95/mo
Down payment
$21,400 — 10%
Under 20%, so the file must be default-insured
Documentation
Statements of business activities, CCA schedules
Filed alongside two years of T1 Generals
What the T1 line does not show — the add-back lines that actually rebuild the income picture:
| Add-back line | Monthly |
|---|---|
| Capital cost allowance on tools, equipment and the work truck — added back in full, non-cash | $425 |
| Vehicle expense claimed $750/mo on the T2125; this lender adds back 50% | $375 |
| Business-use-of-home expense claimed $400/mo; same 50% add-back convention | $200 |
| Total add-back to qualifying income | $1,000 |
The problem
His own bank looked at exactly one number: line 13500 of the most recent T1 General, $3,400 a month. That is real, but it understates what the business actually generates — CCA, vehicle costs and a home-office deduction all reduce the reported net income without reducing what is actually left in his account each month.
The decline, on the reported number alone
- ▸Housing costs on the new purchase: $1,599/mo (qualifying payment plus tax and heat)
- ▸GDS: $1,599 ÷ $3,400 = 47.0% — against CMHC’s 39% maximum
- ▸TDS with the vehicle loan added: 55.9% — against the 44% maximum. Declined on both.
The shape of the problem is common on self-employed files: the T1 line is the number a lender can see without asking any further questions, and by default that is the number it uses. Nothing about the business itself was the issue — the file simply had not yet been rebuilt with the documentation that shows what the business really earns.
The numbers
At 10% down this is an insured file, which puts CMHC’s ratio caps — GDS 39%, TDS 44% — in hard-number territory rather than lender preference.
| Structuring the insured loan | Amount |
|---|---|
| Purchase price | $214,000 |
| Down payment (10%) | −$21,400 |
| Base mortgage (90% LTV) | $192,600 |
| CMHC premium — 3.10% in the 85.01–90% LTV band | +$5,971 |
| Total insured mortgage | $198,571 |
The minimum down payment on $214,000 is $10,700 (5% of the first $500,000 tier); $21,400 clears that with room to spare.
| Rate & payments | Figure |
|---|---|
| Contract rate — 5-year fixed (illustrative, not a quote) | 4.49% |
| Minimum qualifying rate — greater of contract + 2% and 5.25% | 6.49% |
| Monthly P&I at the qualifying rate — the ratios run on this | $1,329 |
| Monthly P&I at the contract rate — what he actually pays | $1,098 |
GDS and TDS, before and after the add-backs
| Ratio | On the reported $3,400/mo | On the qualifying $4,400/mo |
|---|---|---|
| Housing costs (P&I $1,329 + tax $175 + heat $95) | $1,599 | $1,599 |
| GDS vs. the 39% cap | 47.0% ✗ | 36.3% ✓ |
| Vehicle loan added for TDS | $300 | $300 |
| TDS vs. the 44% cap | 55.9% ✗ | 43.2% ✓ |
Every dollar of the $1,000 monthly add-back — the CCA in full, plus 50% of the vehicle and home-office lines — is documented, not estimated: two years of T1 Generals, statements of business activities and CCA schedules, tied together with an accountant letter. Nothing here is a guess about what the business might be worth; it is the same return the bank saw, read completely instead of read at one line.
The solution
A Saskatchewan mortgage broker, licensed under the Financial and Consumer Affairs Authority (FCAA), rebuilt the file around the same T1 the bank had already declined.
First, isolated the gap. The reported $3,400 a month was real, but it was not the whole picture. Rerunning both ratios showed the file failed on income, not on housing cost or on the vehicle loan — a specific, fixable problem rather than a general one.
Second, built the add-back package. CCA is non-cash by definition and most lenders add it back in full. The vehicle and home-office lines are different — part real cost, part discretionary — and this lender’s policy is to add back 50% of each. Three separate schedules were pulled together into one accountant-reviewed summary so the underwriter could trace every dollar back to the return.
Third, submitted complete. Two years of T1 Generals, statements of business activities, CCA schedules, the accountant letter, a 90-day down-payment trail and the vehicle loan’s payment history all went in together, so there was nothing left for the underwriter to chase.
The add-back convention itself is explained in more depth in our glossary entry on add-backs, and the broader mechanics of turning a T1 General into a usable number are covered in our walkthrough of calculating self-employed income from a T1 and T2.
The outcome & the closing math
Approved insured at 90% LTV on a 25-year amortization, once the file showed qualifying income of $4,400 a month rather than the bare $3,400 the bank had seen. Moose Jaw has no verified transfer-tax fact for this file to cite, so the closing-cost line here stays deliberately qualitative — but one Saskatchewan-specific figure is verified and worth stating plainly:
| Cash due at closing (beyond the down payment) | Amount |
|---|---|
| Saskatchewan PST — 6% on the $5,971 CMHC premium, payable in cash, not addable to the loan | $358 |
| ISC land-titles registration and legal fees | varies — no verified fee schedule to cite here |
The lender also wanted a 90-day trail on the $21,400 down payment, which the same account statements that supported the add-back package already covered.
What to take from this file
- 01A self-employed decline is often a documentation gap, not an income gap. The business here always generated enough — the T1 line alone just could not show it.
- 02CCA is added back in full; discretionary lines are not. This lender's 50% convention on vehicle and home-office expense is a policy choice, not a rule — confirm each lender's own add-back percentage before you build the file around it.
- 03The qualifying rate, not the contract rate, decides the ratios. This file qualifies at 6.49% and pays at 4.49% — a real gap between the number the ratios run on and the number that hits the bank account.
- 04Saskatchewan still has real closing costs even without a verified transfer-tax figure. The 6% PST on the default-insurance premium is verified and payable in cash — do not let the absence of a transfer-tax number mean no closing-cost conversation at all.
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 Saskatchewan, Ministry of Finance — Information Bulletin PST-73, "Information for Vendors of Insurance Contracts" (Issued May 31, 2017) — 6% Saskatchewan PST on default-insurance premiums.
- ▸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:
- ▸50% add-back convention on the vehicle and home-office lines — add-back percentages are lender policy, not a regulatory rule.
- ▸4.49% 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.