In the previous episode, we talked about proving or demonstrating the ownership and origin of the initial payment funds. In this episode four, we will talk about how we should prepare to verify our income. By virtue of being an employed worker or self-employed, the way to verify what you earn will vary, but it will always need to be reviewed by the financial institutions in order to know your repayment capacity of the credit that they will offer to you.
In this regard, gathering everything your lender needs to verify your income is a critical component of mortgage success. The last-minute scramble for documents only adds unnecessary stress, so the sooner you can start collecting the verifying documents you need according to your type of income, the better.
Just as you made a folder to enter the documents that prove your initial payment, create another one in which you put all your income information.
In this podcast we will be making a list of documents, perhaps you want to take pen and paper to make a list that will later be your checklist. We will refer to the document by the name normally used in Canada.
So, the income receipts that Financial Institutions or Providers are generally going to request, either if you are a worker, a commission agent or independent entrepreneur, are the NOA, the General T1 and the T4 or a T4A, depending on what type of income we are talking about. These documents have certain similarities and can easily be confused so it is important to explain the distinction between them.
NOA: Notice of Assessment
It is the document known as the tax return, which is the letter issued to you by the CRA - Canada Revenue Agency or the Federal Tax Agency of Canada, after you file your taxes or tax returns. Your NOA will show you the date your return was assessed and if it has a refund, an amount due, or a zero balance.
If there are any changes to your tax return after it has already been submitted, CRA may also issue a Notice of Reassessment.
T1 Personal General:
The T1 general tax and benefit return is the tax return used by taxpayers to calculate their annual tax liability and obtain federal or provincial benefits, such as the GST / HST credit. It summarizes the taxpayer's income, deductions, and taxes, calculated on the supporting forms and schedules, and calculates the taxpayer's refund or balance due. There are five parts to your T1 form that include identification, total income, net income, taxable income, and a refund or balance due.
Your T1 form and any balance due for each year are due before April 30 of the following year or June 15 for self-employed or common-law partners.
T4: Statement of Remuneration Paid
This document is a summary of your earned income and deductions for each year and it is obtained by all workers who have a contract for salary or hourly income.
This form provides information on the income you earned while working for a specific employer, as well as deductions (i.e., Canada Pension Plan (CPP), income tax, employment insurance, etc.). If you have had jobs with multiple employers over the course of a year, you should have separate T4 forms for each of them.
Your employer is responsible for providing you with a copy of this voucher and ensuring that it is sent to the Canada Revenue Agency or Canada Revenue Agency each year. Similarly, your employer must provide you with a copy by the end of February of each year.
You can also log into "My Account" through the CRA website. You can find your T4 in the “tax information slips” section.
T4A: Statement of Pension, Retirement, Annuity, and Other Income
If you have received any income from self-employment during the past year, you will have to declare it with the T4A form and not with the T4.
While T4 and T4A receipts may look similar, T4 includes payroll contributions that you have as an employee.
Be careful: if you work as self-employed, you may not receive a T4A from all employers or clients. Generally, T4As are only sent by companies that see you as a consultant versus a service provider, so it is not a requirement that they issue it to you. Depending on whether you receive a T4A or not, you are expected to report all business and work income that you earned on your own on the appropriate Tax Form (T2125).
Also, if you are eligible and receiving Old Age Insurance, you will receive a different receipt from the CRA, the T4A (OAS). If you are retired and receive the CPP benefit, the CRA will send you a T4A (P), detailing your payments. You must also report any pension or retirement income on your T4A.
In short, with the T4A form you provide the CRA with a self-submitted or self-submitted record of income earned outside of the typical employer-employee relationship. For those who are self-employed, take into account that the onus is on you to make sure you report promptly. The advantage is that you can deduct business expenses or operating costs to reduce the taxes owed.
In the event that you are a Worker or Employed:
If your income comes from a salary with a specified time contract, we suggest that from now on you gather all the proof of income that you have received and that your employer gives you and consider that you will always need the most recent proof of payment, save them by date in your folder.
OTHER DOCUMENTS to prove your income are:
Employment letter. It is suggested that you request this document when you are closer to start the financing application process, because more recent data and dates will be required from the date on which your mortgage file is integrated. This letter from your employment should contain the following:
It must be on company letterhead and company data
Date of issue
Preferably addressed "To Whom It May Concern"
Your current position or job title
Date when you were hired
If you are a new employee at that company, the lender needs to know if your trial period has already ended