Self-employment & income

Self-employment & income

Self-employment: Did you know your self-employed counterparts probably earns more income than you?

According to Statistics Canada, in 2004 the average self-employed Canadian earned an income of $55,600, compared to $40,900 for regularly employed citizens.

Self-employment doesn’t mean unemployment

In 2017, nationally and home in Halifax, millennials and Gen Xers alike are adopting an entrepreneurial spirit through necessity. The days of entering a company at 18 and leaving at 65 are dead. For better or worse, temporary contractual positions (many without benefits) seem to be here to stay.

Today, a career is a collection of curated professional experiences across all levels and industries. Many Canadians are realizing they have little power over employment options, and turn to self-employment as a means of exercising control over their professional and financial development.

You’re self-employed if:

• You own your own business, either incorporated or sole proprietor or partner
• You’re responsible for the payment of your own personal income taxes 
• You work under contract with your employer and they do not deduct income taxes from your pay

When it comes to self-employment, we require extra vigilance in safeguarding your personal financial situation. Regardless of success, most lenders view self-employment as a negative factor in assessing your creditworthiness. Hence the need for extra awareness when it comes to your personal credit score, assets, and debt.

A self-employed individual seeking a loan needs to determine their qualified income. This shows their ability to repay the money they are borrowing.

The two types of income

If you self-employ, there are two types of acceptable qualifying income:

1. Verifiable income: You can qualify using the income you report to the government and pay taxes on. Providing the past two recent tax filings usually is sufficient proof.
2. Stated income: Stating your income at a reasonable level for your occupation and industry experience without having to provide proof.

If seeking to qualify for a mortgage under a stated income program, borrowers are required to have at least a 10 per cent down payment. With less than a 20 per cent down payment, a strong credit score and history would be necessary to get approved underinsured self-employment mortgage programs.

The upside of going with stated income, however, is that it caters to anyone writing off expenses related o the operation of their business in order to lower their personal income (and save on income tax).

This has been a Financial Literacy Month blog post from Team Clinton.  We’re your friendly neighbourhood gluten-free mortgage brokers.

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