How do lenders verify tax returns in Canada?

Question

I always wondered how lenders verify tax returns in Canada. In the Usa, lenders can make you fill up a form that will allow them to pull your tax returns themselves, but such practise doesn’t happen in Canada.

Lenders in Canada can verify your bank statements of the last 3 months, so they can see if you are making up fake pay stubs.
They can also call your employer to verify your information (start date, salary, etc...), not to mention they can check your credit for every debt you have.
However, has anyone have any idea how they verify tax returns?

To my knowledge they can’t because CRA doesn’t share any information with them, although it may change in the future

Scott Isbister · Answer

I would also add the lender could also have you establish and sign in to "MY ACCOUNT" with the CRA to print off requested tax information present or past

Huong Luu · Answer

I have seen lenders ask for letters from Accountants verifying tax returns. The norm is NOA, T1, bank statements and screen print outs of accounts.  Lenders are allowed to contact employers to verify certain employment things. Most large companies HR dept know not to share certain private info, but they will be able to confirm the letter was written by the company, start day, position, if the staff is on leave, etc. Lenders know how to weed out the 'fake' HR staff and fake letters. Lenders are now even doing phone and maybe in-person interview with the borrower.

Hai Loc · Answer

T1 General and NOA.. dont think they can call your employer..

Scott Isbister · Answer

If you carefully read the consent form before you sign it, it gives the lender the right to collect and get financial info from 3rd parties.  Some lenders will have borrower sign consent to get info from CRA, however the CRA will not share.  It is not unreasonable for a lender to request from you T1 generals, T4's, rental schedules from T1 and NOA's including evidence tax position is current.  They also could request a letter from your employer to verify employment and income and prospects of continued employment.  If they are not satisfied with could call employer.    How they choose to use the income verification in qualifying will vary from lender to lender depending on their company's policies.  The exception is for CMHC mortgages which have their own specific policies which lenders need to comply to for default insurance on the mortgage.

Roy N. · Answer

Lots of things could be altered, but it would be an act of fraud to do it.

If a lender thought they had to buy-pass the borrower and consult directly with the CRA, there is a declaration that you could be asked to authorize it (similar to what your accountant will have you sign so they can interact with the CRA on your behalf).  That said, the lender would be more likely to refuse your application than undertake such measures.

Jeffrey Seid · Answer

NOA can easily be photoshopped/falsified.So the general consensus is that indeed Canadian banks can’t verify Tax returns? Yikes!

Roy N. · Answer

@Jeffrey Seid

From experience, I can confirm, if you are self employed, lenders will still want your NOAs and possible T1s, but often for a longer period (I've been asked for 5yrs before).  If your business is incorporated and you are a controlling shareowner, they will want to see the corporate tax returns and Notice to Reader financials from your accountant.

Chris Baxter · Answer

If you are self employed, deal with the bank you do your business with.  I've never had issues with big banks or credit unions - both request NOA and seem happy with this as verification of income.

Jeffrey Seid · Answer

@Zach BousquetThank you for your response!

The reason I am asking is because self employed and people who have a comission/tips based salary will often be ignored by the biggest bank unless they provide 2 years of tax return. They will then either take the average of the 2 years if your income is up, or the lowest if It’s on the decline.

If they don’t verify tax return, one could inflate his returns and make up his history especially if self employed. In quebec for instance, you don’t even need to register your business if you are sole owner & using your own name.

People who work on commission/tips/bonus could be annoyed by the 2 year rule that can require almost 3 years of history with a company unless you perfectly start your commission based job in January. If you start in summer you will lose half of that year on your tax returns and it will make it seem as your job doesn’t pay well.Of course you would need your employer to falsify your start date, but most businesses will do to help their employee achieve his homeownership dream.

The fact that Canadian banks can’t verify tax returns makes it very easy for mortgage fraud.

T4, T1 can easily be falsified if your employer backs you up. The only way banks can verify you are telling the truth is if they can check your tax returns/T4 slips with the CRA

In usa, if you are going with a big bank (low interest mortgages), and they have doubt about your self employed income, they will pull your tax returns themselves, not ask you for a copy you can easily falsify.

Jeffrey Furtado · Answer

I am always asked for previous 2 years NOA and   T1 Generals with statement of business activities.

I never considered if they verify them or how they would. Curious to know/understand this as well

How do lenders verify tax returns in Canada?

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