Getting a mortgage when you're paid by dividends

Can I get a mortgage if I pay myself dividends?

Yes. A corporation owner's dividends can be part of a mortgage application, but approval and the amount counted depend on the lender's review of income, debts and assets. Federal mortgage guidance says preapproval is not a guarantee. Ask the lender at the start how it treats dividends from a company you control, which years it will assess and whether it wants corporate records.

Dividends on a personal tax return are not the same as salary. The lender may need to see both your personal income and the corporation's ability to keep paying it. A profitable corporation's retained earnings are not automatically your personal income. Keep the distinction clear when you apply.

What income proof will the lender ask for?

Start with the CRA records that show what you reported and what was assessed. The CRA's mortgage-industry consultation identifies tax slips, notices of assessment, proof of income statements and T1 returns among documents lenders request. The exact package varies by lender.

For dividends from a taxable Canadian corporation, T5 boxes 10 and 24 show the actual amounts. Boxes 11 and 25 show the larger taxable amounts, which feed line 12000 of the T1. Do not present the grossed-up line 12000 amount as cash you received. A T5 can also report a dividend in property or a deemed dividend, so it alone does not prove a cash deposit. Match the T5 to the return, then use payment records to explain any cash transfer. If line 12000 includes dividends from other sources, separate those from your corporation's T5.

How do I get CRA notices and proof of income statements?

Use your CRA Individual account. For a notice of assessment or reassessment, select Tax returns or Mail, then choose the year and print or download the notice. If a return was reassessed, give the lender the current notice and explain the change. The CRA can arrange a mailed notice if you call.

For a proof of income statement, select Proof of income statement under Tax returns. It summarizes income and deductions for one tax year; download each year the lender requests. The CRA also offers a mailed copy. Confirm whether the lender wants this statement, the notice, or both before ordering paper copies.

Missing a T5? Ask the corporation for its copy. If it filed the slip with the CRA, it may appear in your CRA Individual account. The CRA cannot provide it before the corporation files it.

How many years of dividend income do lenders want?

Prepare the past two years first if the lender treats you as self-employed: the Financial Consumer Agency of Canada says a lender may ask self-employed applicants for CRA notices of assessment for the past two years. That is a document guide, not a rule that two years of identical dividends guarantees approval or that a shorter history rules you out.

Show the matching T1s and T5s for those years, plus any newer records the lender requests. If dividends rose, fell or stopped, explain why with the corporation's financial results. Ask the lender how it will treat a partial year, a dividend from a different company or an unusual one-time payment. Keep those answers in writing so you gather the right records.

At renewal, ask your current lender whether it needs updated income records; renewal may be automatic. If you switch, the new lender must approve your application and may ask for the two-year package.

Should I switch to salary before applying?

Do not switch solely because you assume salary will count more. Salary appears on a T4 and line 10100 of your T1; changing pay now does not change earlier assessed returns. Recent pay stubs may show current payroll, but the lender decides whether it accepts them without a full year or a later assessment.

Ask which documents and income period the lender uses before changing payroll. If you switch, show both income histories and ask how it will assess each. A switch also changes the corporation's payroll and your tax position; see Salary or dividends for that decision.

My corporation is less than two years old. What can I show?

A new corporation cannot supply two years of its own statements or dividend history. Tell the lender when it started and ask what other evidence it will consider; there is no universal approval rule in the federal guidance on self-employed mortgage documents. For its insured self-employed program, CMHC recommends 24 months in business or in the same line of work, with flexible options for newer businesses.

Gather the corporation's completed financial statements, current accounts, T5s issued so far, your available T1s and notices, and records of dividends paid. If the corporation is new but your work is not, bring previous employment records in the same field. CMHC also lists recent account statements and signed contracts; ask what your lender will consider. If it requests interim statements, reconcile bank accounts and owner transactions first. For the corporation's year-end statement requirements, see Year-end financial statements.

What can an accountant's letter or statements confirm?

An accountant's letter can describe specific historical facts supported by records and the work performed. Ask the lender what it needs the letter to say before requesting one. A letter cannot guarantee future dividends, promise mortgage payments or turn corporate profit into personal income.

Ask the lender which statements and accountant's report it needs. For its insured self-employed program, CMHC lists statements with a review engagement report and audited statements among possible evidence of business history. The lender decides whether more is needed. Submit genuine documents that agree with each other: false information on a mortgage application is mortgage fraud and may affect future access to credit.

Example

Illustrative Canadian-dollar figures.

B.C. owner switching lenders at renewal

An owner received C$90,000 of cash dividends other than eligible dividends in each of two years. Each year's T5 shows C$90,000 in box 10; the 15% tax gross-up makes box 11 and T1 lines 12000 and 12010 C$103,500, assuming no other dividends. They gather both T1s, notices of assessment and T5s, two years of corporate statements, and bank records showing the cash. The new lender decides what income to count.

Corporation one year old

An owner of a one-year-old company has C$60,000 of dividends on a T5 and one set of corporate statements. They bring those records, the available CRA assessment and current reconciled accounts. An accountant can confirm what the records show and describe the engagement, but cannot certify that the company will pay C$60,000 again next year.

Salary started six months ago

An owner replaces dividends with C$7,000 monthly salary six months before applying. Six months of pay stubs document C$42,000 in gross salary, but earlier assessed returns still show dividends. The lender may wait for a T4 and assessed return, or may accept current payroll evidence under its own rules. The owner asks which before changing pay further.

Different for you?

• Your lender is in the US: see Proving income to a US lender.
• You need to decide how to pay yourself: see Salary or dividends.
• Your personal tax returns are unfiled: see Catching up on unfiled returns before requesting missing assessments.
• Your corporation's records are behind: see Catching up on overdue books before preparing statements or a lender letter.
• The lender requests statements or a report you do not have: see Year-end financial statements and get bookkeeping help to reconcile the records and define the requested work.