Mortgage Application - Importance of Paying Thousands just to Generate T4 VS. Legit Loan Repayment

[Nir]

Hi All,



Another mortgage question from me.



Example:



- An investor purchased a property under a corporation of which he owns 100% of the shares.

- The corporation is on title and investor's name on mortgage.

- The investor gave the corporation a loan in the amount of $100K (for simplicity lets assume zero interest)

- The corporation generates net income after financing of $50K per year.



Since the above investor gave the corporation a loan, he can take out money (the corporation's net income) up to 100K without paying tax on it and claim it as loan repayment.



My question is not about tax savings but rather financing: will this legit money transfer make it more difficult for the investor to qualify for a new mortgage since he is not showing any income/T4 OR will most banks actually understand his corp. really generates income for the investor and the investor is just claiming it as loan repayment in order to legitimately not pay tax twice on it?



Alternatively, the investor can claim the 50K as income, generate a T4 and pay tax on it.

I'm just not sure throwing around $5,000 to the garbage (tax paid if T4 is generated) would really improve the investor's mortgage application significantly(?)



Thanks,

Neil

 

[Thomas Beyer]

the 100K is shown as net worth. Net worth always helps.



Income is income shown on a tax return and it helps too.



Get a qualified mortgage broker that specializes on INVESTORS for a specific property with a specific income/networth profile !

 

[moparcanuck]

While I can't talk to the banks requirements as such (not my area) I can talk a bit on the accounting side and what the banks SHOULD be able to look at. If you're the sole shareholder, it should be easy to show the bank that your corp is making the 50K per year and by showing the dwindling shareholder loan, you show that you have the funds to pay for your own living. I think you'd be subject to the same scrutiny as other self employed income, but a little common sense on the banker's part would show that there's very little difference between the two.



BTW, keep in mind that if you earn 50K in the corp and live on your shareholder loan repayment, you might not have a tax bill, your corp will.

 

[Nir]

Thanks Thomas and moparcanuck!

 

[ThomasLorini]

I would be interested to know how successful you will be, as I am in a similar situation.