Why does a car lender ask for my notices of assessment?

The notice of assessment is an official document issued by the Canada Revenue Agency (CRA) or Revenu Québec after your tax return has been processed. It summarizes your tax situation for the year and includes essential information such as the amount of tax paid, tax credits and income declared. This document plays a crucial role in several financial matters, particularly for lenders seeking to assess a borrower's repayment capacity.

What is a notice of assessment?

A notice of assessment is a confirmation of the income declared by a taxpayer for a given year. This document summarizes:

• Total income declared
• Tax deductions applied
• The tax balance due or the refund granted
• Available tax credits
• Information on RRSP contribution rights

In short, it is official proof that the CRA or Revenu Québec accepts your declared income and confirms the status of your tax situation.

Why is this document considered proof of income?

Lenders use the Notice of Assessment to verify a borrower's reported annual income. Unlike a pay slip which only shows a snapshot of the income, the notice of assessment covers the entire tax year. This allows the lender to have an overview of the applicant's financial stability and actual income.

Differences with other proof of income

There are several types of documents that lenders may request as proof of income, such as:

• T4 statements: These show employment income for a given year, but do not cover other sources of income (investments, pensions, etc.).
• Pay stubs: These show current income, but do not reflect a full year or tax deductions.
• Income tax return: Although it contains a lot of information, it is not accepted proof on its own, as it must be validated by a notice of assessment.

The notice of assessment is therefore a reliable and complete source, because it is issued by a tax authority and confirms the amounts declared.

Key information included in the notice of assessment

The notice of assessment contains essential elements for assessing a borrower's repayment capacity:

• Net and Total Income: Provides an overall overview of the borrower's annual income.
• RRSP contribution room: Can indicate financial situation and potential savings.
• Tax balance: Shows whether the borrower has paid all of their taxes or whether they still owe money to the CRA or Revenu Québec.
• Tax credits and adjustments: May affect disposable income and ability to repay.

In conclusion, the Notice of Assessment is a crucial document for auto lenders because it provides a clear, reliable and complete picture of a borrower's financial situation, allowing them to make an informed decision when evaluating a loan application.

When you make a request for car loan, providing the correct documents is essential to obtain a fast approval. The submission process involves several steps, from collecting documents to submitting them to lenders. Here's a comprehensive guide to ensure your auto loan application is well-prepared.

1. How to submit your notices of assessment when applying for a car loan

The Notice of Assessment is a key document that many lenders require. This document is usually requested to verify your income and financial situation.

• Submission Steps: Prepare a recent copy of your Notice of Assessment (usually from the last two years). You can submit this document in a number of ways:
  • Online: Upload a scanned copy directly to the lender's portal or send it via email.
  • In person: Bring a hard copy when you meet with the lender or broker.
  • Through your accountant: Some borrowers prefer to have their accountant or tax professional provide the notice of assessment directly to ensure all details are accurate.

2. Other documents that the lender may request

In addition to the notice of assessment, auto lenders often require other documents to assess your financial profile. Here is a list of commonly requested documents:

• Pay stubs: Used to confirm your current income, especially if your employment is recent.
• Bank Statements: Show your spending habits, savings, and recent deposits.
• T4 or T4A: These tax forms confirm your income reported annually to the Canada Revenue Agency.
• Proof of address: Utility bills or bank statements with your current address.
• Driver's License: Used to verify your identity and personal information.
• Employment Letter: Confirmation of your position, salary and employment status (permanent, temporary, contract).

3. Tips for collecting and preparing your documents

Carefully preparing your documents can speed up the auto loan application process and increase your chances of approval.

• Verify accuracy of information: Make sure the names, addresses and amounts on your documents are accurate and up to date.
• Scan your documents: Have digital copies ready to email or upload to the lender portal.
• Keep your documents organized: Use labeled folders to group all your financial documents. This will allow you to quickly find them when needed.
• Request official copies if necessary: If you have lost your notices of assessment, you can request a copy from the Canada Revenue Agency or Revenu Québec.

4. Common Mistakes to Avoid When Submitting

A poorly prepared or incomplete application can delay your car loan approval process. Here are some common mistakes and how to avoid them:

• Outdated Documents: Submitting assessment notices or pay statements that are more than two years old may result in delays. Always use recent documents.
• Inconsistencies in information: Discrepancies between your pay stubs, notices of assessment, and tax return can raise concerns with the lender. Make sure all information matches.
• Unreadable or poor quality documents: Blurry or poorly scanned copies may be rejected. Use a good quality scanner or take clear photos with your phone.
• Omission of certain documents: Failure to provide all the required documents may result in unnecessary back and forth with the lender. Review the list of required documents and make sure to submit them all at once.