“You can’t write off $170,000 and pay less in taxes,” says Marcel Greaux, a mortgage broker in Toronto, "then still expect a traditional mortgage on your $30,000 income.”
Further, Greaux says the CMHC’s move to eliminate the stated-income program further complicates the financing process for agents. As a result, many banks won’t lend to real estate professionals so agents often find themselves seeking a mortgage from private lenders.
“The B lenders have tightened their belts as well in 2014, just in terms of the types of documents they require for stated-income deals,” Greaux says. “So depending on the mortgage deals [agents] are doing, and depending on how they structure their financing, their business, how they bring income into the business and how they show it for income taxes, that will show how eligible they are for certain mortgages.”
Greaux says agents should discuss with an accountant the best way to structure their businesses so they’re prepared when it comes time to qualify for a mortgage. That could mean forming a company under which they’re remunerated as consultants, or paying dividends as a way of getting around commission-based income restrictions.
Organized agents will also face fewer headaches when it comes time to sign the dotted line and get a mortgage, Greaux says.
“Be prepared to show bank statements that can prove [the income you’re declaring] if it is state income,” he says. “It can show consistency. If they stay on top of their finances, that’s definitely helpful in the world of stated-income. Having financial statements up-to-date is also helpful. Overall, it comes down to organization.”
It’s one of life’s little ironies, but agents are just as susceptible to the tax-related dangers of self-employment as the next guy – namely the kind of aggressive tax avoidance responsible for scuttling homeownership.