The client
A Vancouver Island trades sole proprietor — framing and finishing work, concentrated in the spring-to-fall building season — buying in Duncan. A decade in business, a loyal client base, and twelve months of business bank deposits totalling $240,000. His accountant, entirely correctly, has spent a decade minimizing his tax bill: two filed T1 years show net business income averaging just $3,000 a month.
Business
Trades sole proprietorship, 10 years
Seasonal, spring-to-fall operating window
Filed T1 net income
$33,600, then $38,400
Two-year average $3,000/mo
12-month bank deposits
$240,000, gross
Business account, verified by statement
Credit picture
Excellent, single vehicle loan
Vehicle loan $340/mo
Purchase
$705,000, Duncan
Property tax $260/mo; lender heat estimate $130/mo
Down payment
$70,500 — 10%
Under 20%, so the file must be default-insured
The problem
The applicant’s bank read the T1 net figure at face value, as it is required to for a straightforward A-lender file, and the math never had a chance.
The T1, taken at face value
- ▸Two-year average net income: ($33,600 + $38,400) ÷ 2 = $36,000/yr, $3,000/mo
- ▸Liabilities: mortgage payment at the qualifying rate, property tax, heat and the vehicle loan
- ▸TDS: 178.3% — not close to CMHC’s 44% maximum. Declined outright.
A ratio that far past the ceiling looks, at a glance, like a business that cannot support the purchase. It is not — it is a business whose owner has spent ten tax seasons legally minimizing reportable income, exactly what a good accountant is supposed to do. The T1 net figure is real for tax purposes and almost meaningless for assessing what the business actually generates. Our comparison of alt-doc and traditional income qualification covers exactly this gap between filed and actual.
The numbers
At 10% down this is an insured file, so CMHC’s maximums — GDS 39%, TDS 44% — are the hard numbers the fixed treatment has to clear.
| Structuring the insured loan | Amount |
|---|---|
| Purchase price | $705,000 |
| Down payment (10%) | −$70,500 |
| Base mortgage (90% LTV) | $634,500 |
| CMHC premium — 3.10% in the 85.01–90% LTV band, capitalized | +$19,670 |
| Total insured mortgage | $654,170 |
The minimum down payment at this price is $45,500 — blended, since $705,000 is above the $500,000 tier boundary: 5% of the first $500,000 plus 10% of the remaining $205,000. $70,500 clears it.
| 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 | $4,618 |
| Monthly P&I at the contract rate — what he actually pays | $3,838 |
Income — the T1 vs. the bank statements
| Income treatment | Monthly |
|---|---|
| Filed T1 net, two-year average | $3,000 |
| 12-month gross business deposits | $20,000 |
| Deemed expense factor, 35% | −$7,000 |
| Bank-statement qualifying income | $13,000 |
TDS — the swing from T1 to bank statements
| TDS line | Filed T1 net | 12-month bank statements |
|---|---|---|
| Housing costs (PI + tax + heat) | $5,008 | $5,008 |
| Vehicle loan | $340 | $340 |
| Income used | $3,000 | $13,000 |
| TDS vs. the 44% cap | 178.3% ✗ | 41.1% ✓ |
GDS on the bank-statement income comes to 38.5% — inside the 39% cap, though closer to it than the TDS margin. This is not a case of hiding income from the CRA; every dollar in the T1 is correctly reported. It is a case of a lender-side program built specifically to read what a heavily-written-off business actually earns in cash, which our guide to how B lenders assess a file an A lender turned down covers in more depth.
The solution
A BC submortgage broker, licensed under the Registrar of Mortgage Brokers, moved fast once the T1 math made an A-lender approval impossible.
First, established that the shortfall was a documentation problem, not an income problem. Twelve months of business bank statements showed exactly what the T1 could not: real, consistent, seasonal-but-substantial deposits.
Second, placed the file on a bank-statement program at a lender publishing a deemed expense factor for exactly this borrower type — a documented sole proprietor with strong deposits and a thin T1. The 35% factor here is one lender’s own published rate; every program sets its own, as our overview of B-lender pricing explains.
Third, documented the seasonality up front so a lender unfamiliar with a Vancouver Island building season wouldn’t misread a quiet January deposit month as instability:
The outcome & the closing math
Approved and funded: insured at 90% LTV, 25-year amortization, 5-year fixed — on a program built for exactly this kind of file. For context on how this mortgage size compares nationally, see our data on the average new mortgage amount in Canada. The bank-statement rate carries a premium over posted A-lender pricing, which the broker disclosed and the client accepted as the cost of qualifying on real cash flow rather than a filed figure ten tax seasons of write-offs had shrunk.
| Cash due at closing (beyond the down payment) | Amount |
|---|---|
| BC property transfer tax on $705,000 — 1% / 2% marginal brackets | $12,100 |
| Legal fees, title insurance & adjustments | varies |
What to take from this file
- 01A filed T1 net figure can legitimately understate a business’s real cash flow by an enormous margin. This file swung from 178.3% to 41.1% TDS on the same business, same year, different income lens.
- 02A 12-month bank-statement program reads gross deposits, not net income. The deemed expense factor is the lender’s own published number, not a rule — shop it.
- 03Seasonal deposit patterns need an explanation, not just a statement. A quiet month on a 12-month statement, unexplained, invites the wrong conclusion.
- 04GDS can be the tighter constraint on a bank-statement file. Here it cleared with less room than TDS did, the opposite of the more common pattern.
- 05Budget the BC property transfer tax before assuming a bank-statement approval is the whole cost story. $12,100 was due in cash on top of the down payment.
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.
- ▸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.
- ▸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.
- ▸CMHC — CMHC Home Start — minimum down payment tiers (5%/10%) and the $1.5M insured price cap.
- ▸CMHC — Purchase (Mortgage Loan Insurance) — default-insurance premium schedule by LTV band (25-year amortization).
- ▸Property Transfer Tax Act, RSBC 1996, c. 378, ss. 3(1) and 3.01(4) — BC's property transfer tax: 1% / 2% / 3% marginal brackets.
Illustrative in this file — lender-specific, not rules:
- ▸5.09% contract rate — rates move daily; not a quote.
- ▸35% deemed expense factor — each bank-statement program publishes its own factor.
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.