The Self-Employed Income Calculation Worksheet.

Step 1. Gather the T1 Generals, NOAs, and business records first

Every self-employed calculation starts with the same document set, and missing even one piece is the fastest way to stall a file before the math even begins.

• →Two years of T1 General returns (Income Tax and Benefit Returns), complete with all schedules.
• →Statement of Business or Professional Activities (T2125) for each of those two years, showing gross revenue and expenses.
• →Notices of Assessment (NOAs) for both years, confirming the return was assessed as filed and that there's no tax arrears balance owing.
• →Business registration or articles of incorporation, confirming how long the business has operated and under what structure.
• →GST/HST registration details where applicable, since revenue at a certain threshold requires registration and a mismatch is worth explaining upfront.

Step 2. Read the T1 and NOA line by line, not just the bottom number

Three lines matter most. Line 13500 is net self-employment income — gross business income (reported starting at line 13499) minus business expenses — and it's the figure most lenders start from for a sole proprietorship. That number flows into Line 15000, total income before deductions. Line 23600, net income, subtracts further deductions (RRSP contributions, union dues, and similar) and is the figure the CRA uses for benefit calculations — useful context, but not always the number a lender qualifies against. For the exact definitions, see the CRA's self-employment income lines.

If the business is incorporated rather than a sole proprietorship, the applicant is typically drawing salary or dividends from the corporation, and the picture may need corporate financial statements alongside the personal T1 — confirm which structure applies before assuming the sole-proprietorship read is correct.

Step 3. Build the two-year average, then apply add-backs carefully

The standard framing lenders use for self-employed income is a two-year average of the declared figure (typically Line 13500 for a sole proprietorship), not the most recent — and possibly highest — year in isolation. CMHC's Self-Employed program also recommends a minimum of 24 months operating the business, or in the same line of work, with additional flexibilities available for shorter histories — confirm those flexibilities with the specific lender rather than assuming they apply.

1. 01Pull net self-employment income for each of the two most recent tax years.
2. 02Add the two years together and divide by two — that's the baseline qualifying income before any add-backs.
3. 03Ask the specific lender which add-backs, if any, they permit (some allow adding back certain non-cash deductions; policies vary significantly and none should be assumed without confirming).
4. 04Document any add-back with the source line item it comes from, so the underwriter can trace it directly back to the T1 or T2125.

Step 4. Sanity-check the declared income against bank activity

The declared two-year average is the number that qualifies the file, but it's worth a second pass against the business and personal bank statements before submission — not to substitute one number for the other, but to catch anything that will raise a question later.

• →Do regular deposits into the business account roughly track the revenue reported on the T2125? A large, unexplained gap either way is worth understanding before an underwriter asks.
• →Are there NSF or overdraft instances in the business account that suggest cash-flow strain the tax filings don't show?
• →Does the personal account show income being drawn out consistently, in a pattern that matches a going concern rather than a business winding down?
• →If revenue jumped sharply in the most recent year, is there a documented reason (new contract, business change) that a lender would find credible?

Step 5. Red flags to resolve before submission

• →Declining income between the two years — a lender will likely use the lower, more recent figure, or scrutinize the trend closely; flag it and explain it rather than letting it surface as a surprise.
• →Tax arrears on either NOA — resolve or clearly document the payment arrangement before submission.
• →A single unusually strong year presented without its weaker counterpart — this is the single most common self-employed red flag and the fastest route to a re-underwrite.
• →Recent incorporation or business structure change that shortens the usable operating history.
• →Industry or business-type change between the two years, which can undercut the “same line of work” standard some programs rely on.

A fully worked example

The numbers below are illustrative only — a simplified example to show the mechanics, not a real applicant.

Two-year average: $58,000 + $72,000 = $130,000, divided by 2 = $65,000. That $65,000 — not the $72,000 most recent year, and not an average weighted toward the stronger year — is the baseline figure to carry into the ratio calculations, before any lender-specific add-backs are confirmed and applied.

Running this calculation by hand for every self-employed file is exactly the kind of repeatable, rules-based work Treadstone's AI underwriting is being built to speed up, currently in early access with an email waitlist. For the human side today — a fulfillment team that packages files like this one — see Treadstone's fulfillment services. For the fuller picture of how underwriters weigh every income type, pair this worksheet with the Broker's Underwriting Handbook.