How to Determine If You Are Non-Salaried
Being non-salaried would be best defined as having irregular income or non-guaranteed hours. If you’re salaried full-time or part-time with minimum hours, you may want to refer to our salaried qualifying article. If you meet any of the criteria below, it’s likely that you are non-salaried for mortgage purposes:
- You own at least 25% of the company you are claiming income from
- Your job letter or employer can’t confirm you are guaranteed a minimum number of hours.
- Your earnings are not guaranteed (ex: commission).
- Your earnings fluctuate a lot across pay cheques or are seasonal in nature
- Your employment is on a contract-basis
It’s possible that some jobs may include a salaried and non-salaried component. For example; you have a base salary + commission, which would mean only the commission portion (not the base salary) of your total compensation is subject to the rules laid out below for non-salaried income. You would calculate your qualifying income from the base salary as per the salaried income rules.
Why Qualifying Income Matters
Like we discussed in our Guide To Buying a Home, your income influences how much mortgage you can get. This will be determined by your mortgage representative during your pre-approval. Your qualifying income is what you would enter into any Affordability Calculators when determining what property price range you can afford. For non-salaried income, it’s not straightforward to calculate your qualifying income so we strongly recommend that you meet with a mortgage professional to review.
How To Calculate Your Qualifying Income
For non-salaried income, one of the most important things is a proven track record. This means you will need to have a minimum of 2 years income history (ie: tax filings) to be able to use any of your income to qualify. Some exceptions to the 2 year rule can be made if your new role is in your previous field. Examples of this include:
- If you worked at an accounting company for 6 years before starting your own accounting firm 1 year ago.
- You have been a commissioned sales rep for over 4 years and left for a similar role at another company 1 year ago.
Exceptions to the 2 year rule are not guaranteed and you would still require at a minimum 1 year of history in your current employment.
Regardless of your income strategy or capital structure, everything has to flow through your T1 tax filing and lenders will require them. In your most current T1 (Page 2, Step 2 – Total income), take the sum of lines 101,102,104,120,121,122,135,137,139 and 180 to calculate your current year qualifying income. Repeat this step for your prior year T1 to get your prior year qualifying income. Your final qualifying income will be the lower of:
- The average of the past 2 years T1 qualifying income
- The most current T1 qualifying income year
So for example, if your qualifying income (using the lines stated above from your T1) was $50,000 in 2019 and $40,000 in 2018, you’d only be able to use $45,000 (the average). However, if your income was $60,000 in 2018 instead of $40,000, you’d only be able to use $50,000 (the most current) since it’s lower. Using our Qualifier Tool, you can enter the qualifying income you calculated above to get an estimate for how much mortgage you can get under the mortgage stress test.
Requirements For A Mortgage Application
Depending on the type of income, you may be asked for documents unique to that income. At a minimum, you will need to submit:
- Your 2 most current T1 tax filings and Notice of Assessments from the CRA (to confirm your tax filing was approved).
- If your latest NOA had taxes owed, a copy of your CRA account balance confirming no taxes are still owed by you.
- If you are trying to claim your current year income (and haven’t filed taxes yet), a year-to-date earnings report to confirm your commissions or bonus payments.
- Proof your business is registered, which could be satisfied by providing a copy of your business license (if a sole proprietorship) or your articles of incorporation (if incorporated).
Qualifying for a mortgage when you’re non-salaried requires substantially more documents than when you’re salaried. It’s possible that even after you provide all the above, the lender may ask for more documents. One last thing we want to emphasize is that your qualifying income is used by lenders to assess you before your closing date. So if you decide to change your business structure (ex: incorporate your company), sell the company or change jobs after you buy a home there’s really nothing stopping you as they aren’t monitoring you afterward, but do not make any of these changes before your closing date. At a later date, if you want to switch lenders or buy another property you will be re-assessed in the same manner. Make sure to plan accordingly. While getting pre-approved, it’s a good idea to mention any potential life changes to your mortgage representative so they can advise you if it will affect your mortgage options going forward.