Add-backs

Lender allowances that add specific expenses back to a self-employed borrower's net income for mortgage qualifying purposes. The logic: certain “expenses” on the T1 or T2 don't actually reduce the cash flow available to service a mortgage, so they shouldn't reduce qualifying income.

Common add-backs include:

• Capital cost allowance (CCA). Non-cash depreciation expense, doesn't reduce real cash flow.
• Business-use-of-home. The home office deduction; the expense exists whether or not you claim it.
• Personal-use portion of vehicle expenses. Gas, insurance, maintenance you'd be paying anyway.
• One-time non-recurring expenses. A bad year with a legal settlement, a one-time write-down, etc.

Each lender has its own add-back policy. Some are generous (most alt-A and BFS programs), some are restrictive (most big banks). Knowing which add-backs each lender allows is the broker's value-add. Walk-through: Self-Employed Mortgages in Canada.