Last week, a major Canadian bank overhauled mortgage verification for those with foreign income. The surprisingly strict rules, left many wondering if other banks would follow with similar changes. No need to wonder, the Office of the Superintendent of Financial Institutions (OSFI) confirmed with us that more strict guidelines are being adopted at all banks they oversee. Guidelines are still just guidelines, so there’s flexibility in how they’re enforced. Despite the variance between banks however, all borrowers using foreign earned income to qualify for a mortgage, should expect more strict verification procedures going forward.
Income Verification Under Guideline B-20
The goals of B-20 Guidelines are to confirm details about the borrower, their finances, and the home’s value for uninsured mortgages. We’ve already discussed most of this in painful detail, quite a few times. Heck, we even crunched the numbers on how many people can still afford a typical mortgage, for Toronto and Vancouver real estate (time saver: not many). Today we’re going to focus on how verification will be done for those with foreign sources of income.
OSFI confirmed that borrowers with foreign income at Federally Regulated Financial Institutions (FRFIs), should be conducting similar checks to domestic borrowers. That is, they should confirm the following:
- Employment status; and
- Income history
I know. If you’re familiar with a Brampton Loan, you know that doesn’t mean anything. You just get a “letter of employment” from a friend, and continue to dodge taxes. You technically shouldn’t be able to get away with that scheme… anymore. OSFI further adds that the lender should confirm the following:
- The income is verified by an independent source;
- The source is difficult to forge;
- The source directly verifies the amount declared;
- The income does not contradict other details in the loan.
Banks Will Treat Foreign Income With “Rigorous” Policies
OSFI reminded us that they expect banks to develop “rigorous” policies. They further added “in cases where income cannot be verified adequately, institutions should have strong compensating controls in place.” If you don’t speak bureaucrat, that response is twice as ambiguous as you might have guessed. We’ll translate.
That statement tells banks to verify the income is in Canada legally here. A Notice of Assessment from the CRA, or a T1 showing foreign income would be enough for banks to verify. If they don’t, the bank needs a “compensating control.” That means another official way to verify regular income can reach here legally, that can’t be easily forged.
Last week we got the first bank’s interpretation of these rules. CIBC, a bank known for their substantial non-permanent resident client base, informed mortgage specialists of strict new rules. There’s a whole list of the changes, but they almost all result in foreign buyers notifying local tax authorities (a.k.a. the CRA) of overseas income. This sounds small, but there’s a huge number of people that haven’t been declaring foreign incomes locally. This was even briefly mentioned in the Government of British Columbia’s 2018 budget this week. Two other banks have confirmed they’re still ironing out the exact details, but similar procedures will be unveiled.
Have Foreign Income? No, You Won’t Be Double Taxed
Declaring foreign income in Canada? That’s ridiculous! We’ve been seeing posts on Chinese-language forums suggesting “loopholes.” Anonymous, and friendly strangers, have begun giving “helpful” suggestions on how they believe you can work around the new rules. Things like “networking,” and asking a friend to write you a job letter to qualify. It’s usually followed up by a Chinese-Canadian saying something that roughly translates to “just pay your damn taxes.”
Pouring through these forums, it appears the reason a lot of people are looking for loopholes is they fear being double taxed. That’s not the case. Canada has tax treaties with a lot of countries (China included), to prevent this issue. It’s not super obvious, since our tax system is overly complicated when contrasted to places like Hong Kong.
A treat for our Chinese readers, found on a popular Chinese-Canadian forum. But what could they possibly mean? 🤔
If you live in Canada, earn income in China, and pay taxes there – you would declare all of those things in Canada. Typically you would only owe the difference between Chinese and Canadian taxes. For example if you paid 30% taxes in China, and would owe 40% in Canada on the same income – you normally pay the difference. Hire an accountant if it’s still unclear, or call up the CRA.
When markets are in an upcycle, few people question the quality of mortgages. Afterall, if it turns bad during a boom – you can always sell the home to a long list of buyers. When buying starts to slow, as is anticipated this year, higher scrutiny of deals should be expected. This step seems like a small one, but it’s the first move in restoring sanity to the country’s real estate markets.
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BAHAHAHA! Nice forum find! Good luck trying to find someone to honestly translate the meaning of that statement.
Even Chinese people don’t want to publicly translate things that make them look sketchy. Not all Chinese people do these things, but almost all of us are embarrassed when we see comments like this.
I’m guessing that’s why we’ve seen those new immigrant ads disappear from every bank’s website?
What I don’t understand is if this is B-20 related, why did CIBC make the changes at the end of January? They only had until Jan 1 to comply. More so, why haven’t other banks already updated their procedures? This shows how soft regulations are in Canada. There’s no punishment for non-compliance, or the punishment is so small it might as well not exist.
The narrative being built by our government is that is that foreign money was the problem. Not interest rates but ‘them’…gross and xenophobic but easy and faceless (doesn’t come back to hit the BoC or the current federal government directly). All of the other banks have unofficially, or will, implement similar lending practices in the next 30-60 days. Come the spring market, I think we’re going to see a bigger shock than expected.
What is going on now IMO, though many think I am full of it, is a call on capital by Xi. China isn’t sharing info because WE made them do it; Xi wants his money back. What I find vert telling is the forums…These internet forums run a large amount of business and drive Chinese sentiment for the non-elites; the fact that there is chatter all over the place trying to find loopholes means there is desperation…chinese elite don’t go to internet forums to discuss tax loopholes!
“chatter all over the place trying to find loopholes”
Egad. The government really has it backwards, just ban foreign ownership of real estate altogether. At the very least it would kaibosh any suggestion of a particular xenophobia. No one cares what the nationality is of a rabid dog who desperately wants to cut in on your purchase of a house or condo. What’s the difference between that and mobsters knocking on your door and demanding protection money? We’ve got more than enough banks and several levels of government doing that already. The last time things were this bad for our average serf was more than 500 years ago.
About time. If you won’t do the country the simple duty of paying taxes, we shouldn’t be liable for your mortgages when you default. I know, they’re “uninsured,” but we still would have to pony up liquidity if these uninsured mortgages go bad. Look to the taxpayer-funded liquidity injection we saw in 2010.
Tick.tock.tick.tock…
[…] Canadian Regulator Confirms It’s Harder To Get A Mortgage With Foreign Income Now (Better Dwelling) […]
I hope all the people playing the blaming games don’t have much mortgage to carry, because things will get tougher and tougher. Chasing off foreign capital and immigrants won’t add any GDP. When oil is flat and NAFTA is half dead, what else we have in Canada as economic engine? And the interest rate just start to go up! Oh boy, There will be time you wish you have foreign income and equity!
There are many more negatives to foreign “investment” than positives, It is economic colonialization by foreign capitalists and is speculative and inflationary.
The issue is unregulated flipping and using undersized condos as oversized safety deposit boxes.
When prices really start to tank, I would encourage over-leveraged home flippers to hold onto their properties for as long as possible, and for young buyers to keep their powder dry for as long as possible.
You are mistaking asset inflation for economic growth. Asset inflation does not build our productive capacity and therefore adds no long term benefit to the economy. Like all forms of inflation, it merely transfers wealth from one group to another.
Go home C, you’re drunk!
Only stupid people think a house is equity. A mortgage is a liability. And borrowing against a house is a liability.
And this new regulation doesnt ban foreign income, it ensures there IS income. And it makes sure that income is paying taxes in its home country, and isnt illegally gotten gains, or you know, income from fentanyl sales.
Yes, thats right, all canadians will cry when we are not laundering chinese drug dealers money through our banks and housing market. Boo hooo…..dumb ass.
Non-resident owners of residential real estate, beginning with non-residents who own property in British Columbia as the BC NDP government plans, are going to be exceptionally higher taxed on their properties to remove the incentive to speculate and to discourage and eliminate them from the market. That, more than the banks tightening mortgage loan approval criteria for foreign purchasers, will affect residential real estate supply and price.
The Chinese translation:
New immigrant program requirements：
New immigrants landed within one year will need Canadian income, no job is fine as long as you have a job letter, and minimum 20% down payment.
Countermeasures: Use all your connections to help the customer obtain a “job letter” with said required “income” and then you are golden for loan app.
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