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Income gross-up is a method some Canadian lenders use to increase a borrower’s qualifying income above the amount actually received, applied to non-taxable income sources — such as certain benefit or disability payments — before calculating GDS and TDS.
Non-taxable income has no tax withheld from it, so its real spending power is higher than the same dollar amount of taxable income. A gross-up approximates the equivalent pre-tax income a borrower would need to have the same after-tax amount available, before it feeds into qualifying income and the GDS ratio.
The gross-up percentage and which income sources qualify are set by each lender rather than by a single standardized rule, and the borrower still needs to document that the income is genuinely non-taxable. The same principle — recognizing more value than the raw dollar figure shows — also appears in how some lenders treat rental income through rental offset.
Grossed-up qualifying income = Non-taxable income + ( Non-taxable income × Gross-up % )
Lender-specific policy: the gross-up percentage and which income sources qualify are set individually by each lender, with no single standardized federal rule.
Common non-taxable sources: certain child-related benefits, some disability payments, and select foreign or exempt income are typical candidates for a gross-up, subject to lender policy.
Feeds directly into GDS/TDS: the higher, grossed-up figure — not the actual dollar amount received — becomes part of qualifying income used in the ratio calculations.
Documentation still required: lenders require proof the income is genuinely non-taxable before applying any gross-up.
A borrower receives $1,000 per month in non-taxable benefit income; the lender on this file applies a 25% gross-up:
$1,000 + ($1,000 × 25%) = $1,250. The 25% gross-up is this lender’s own policy — rates and eligible income types vary by lender, so always confirm the specific rules with the lender being used.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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