Your Accountant didn’t tell you, did he?

A large and growing segment of Canadians are self-employed. In fact, the self-employed now represent close to 16% of the country’s workforce. Today’s generation of contractors, freelancers, consultants, commission sales professionals and small business owners have come to value independence in their day-to-day work.

But that same entrepreneurship is often penalized when it comes to mortgage financing.

You probably rely on the expertise of your accountant for great tax advice. He or she probably minimizes and maybe even helps you prolong your payment of taxes. In fact, it’s often considered wise to keep your taxable income as low as possible. That makes you a smart business person.

We often measure the quality of our accountants’ services based on how much they are able to save us on taxes. The lower the tax bill, the better the accountant and the happier we are.

Here’s the one thing your accountant won’t tell you as you start to celebrate that refund you expect to receive. Regardless of structure or tax reporting, the issue is the same. The higher the business expenses reported, the lower the taxes and subsequently, the lower the mortgage approval.

I hear it all the time, “How can that be when I made $ xxx amount of money last year…”?

There’s a BIG difference between your Gross income versus your Net income. You may have “grossed” $ xxx amount of money last year, but by the time your wrote everything off, your “net earnings” were substantially lower. Not to mention the fact that the banks will then want to average that net income over the previous two years.

We asked local Richmond based accounting firm Couzelis & Co about this item and found there may be a best of two worlds.

Couzelis stated: “We always strive to have our clients pay the least amount of tax they are legally responsible for. Although, when you are qualifying for the right mortgage, we like to spend time with the business owner showing them how to represent their earnings and their ability to pay. Too often a lending institute will go with the simple “Notice of Assessment” and not account for business expenses that should be normalized.” So, the more informative information you can provide to a lender; the easier you will make their job to secure the right mortgage amount, at the most favorable rate.

Whatever accountant you decide to use, let them know you will be applying for a mortgage. Otherwise, they just might not bring it up.

Mark Fidgett is a Vancouver mortgage broker and the driver behind www.NotaPennyDown.com

– No Hassle

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P.S. Who’s the next person you know who wants to save thousands off their mortgage. Be sure to give me a call so we can help them! 604-273-2002