Self Employed Mortgage Options?

[Pesty]

Hi everyone! We are self employed and having just sold our IP have a cash Deposit of $45k to purchase a block of land. We were originally informed by ANZ that we could borrow enough to buy the land and then build. However, they have now changed their position on this and will only lend us enough to buy the land and then will look at us again after our next Tax Returns are done. We applied for and were approved for, the Home Builders Bonus (Stamp Duty was $4k). Unless we find a construction lender ASAP, we won't qualify for the Builders Bonus (slab must go down within 26 weeks from Settlement to comply) and will have to pay the Stamp Duty which would otherwise top up our Deposit if we remain exempt from the Stamp Duty. Settlement is expected to be about 10 weeks away as the subdivision is still with the Council.

This financial year will see our 3rd Business Tax Return under our belt, the first one didn't include a full years trade starting out. Last year we had strong profits, this year is looking even better so far. As the ANZ will only look at our Taxable Incomes (which don't show about $30k of Drawings, Carers Allowance and Carers Bounuses) we are looking at other lenders for the build. Can anyone tell me which lenders would look favourably on us considering we are self employed (co-owning the Business with another couple), have a cash Deposit, also have 3 kids and are renting til we move into our 'build'?

We are waiting to hear from RAMS, are these guys a good option? I have been Googling and checking Infochoice/Cannex etc but information from real people tends to be far more accurate than Bank websites in my experience!

Any advice will be greatly appreciated!

Best Regards,

Nicki Warren

 

[Rolf Latham]

Hi Nikki

Someone like St George may work better for you since they focus on the current, most recent tax year, and tend to not average the income

Bit confused though about the 30 k drawings from the business..........this would be reflected in ur taxable income usually ?

ta
rolf

 

[Pesty]

Hi Rolf, thanks for your reply! We do already have accounts with St George, so thank you, I'll definitely check out what they could offer. With regard to the Drawings, here's how it works. We have a Discretionary Trading Trust and a Corporate Trustee. The Trustee Company consists of four Directors. So our Business Income - Business Expenses (including my husbands and our Business Partners wages) = Profit. This Profit figure then becomes four equal Trust Distributions to each of us once our decuctions have reduced this figure, thus minimising our PAYG. So my only Taxable Income is my Distribution, my husbands is his wage + his Distribution. That's all they will look at even though we are drawing much more than this. To quote the Consultant "It wouldn't matter if you were drawing $300k, we can only confirm your Taxable Income as stated on your Returns".

Best Regards,

Nicki

 

[Rolf Latham]

Hi Nicki

Thats a pretty standard way.

Im still on the outer with the "drawings" though.

Unless these are cash based and dont appear in the records, someone must be paying income tax on these or declaring them, eother as a pre tax cost to the business, or somewhere along the food chain.

ta
rolf

 

[Pesty]

Hi Rolf. The confusion may be that Business Income minus Business Expenses = Profit. So at any time the actual $x amount of Profit (which becomes four peoples Taxable Income that we all pay Income Tax on individually) consists of the Business Bank Balance and the exact amount that each family has drawn as a wage (the reported Wage forms about a third of the total weekly amount drawn). So for example $200k in Business Income minus two Wages (we pay the PAYGW in our BAS'S) and minus Business expenses may equal $100k. So we are left with $100k, distributed 4 ways @ $25k each person. So my husbands Taxable Income may be $20k (Wage with PAYGW paid in BAS) plus his $25k Distribution =$45k Taxable and myself $25k Taxable. We all make PAYG Instalments each quarter to pay our taxes. The figures used aren't accurate but close to our scenario.

Regards,

Nicki

 

[The Sniffer]

Based on what you’re saying. The banks will take your husband’s PAYG (20k), his distributions (25k) and your distribution (25k).

Is that not your income?
What part are the banks not accepting?

 

[ianvestor]

Pesty, have you considered shopping around for a good mortgage broker, instead of focusing on the lender yourself? Just wondering.

 

[Pesty]

Sniffer, I humbly say that I've just made an error calculating! I have given the Gross figures and not the net.

Gross Distributions are $24745 each.

Net Distribution for my husband (after allowable deductions) = $21000

Net Distributions for myself = $19000

As they are only assessing my FTB on my current rate (recently adjusted to avoid an overpayment) they are assessing it as $4000 less than the actual received to date plus all future payments til June 30 on my current rate: $15000. So they ahave assessed my FTB to be $11000. My total Carers Allowance will be over $13000 by June 30, but Carers Allowance is unassessed as income by the ANZ.

So put simply, 'assessable by ANZ' income for this financial year will be $20000 (husbands wage) + his distribution $21000 + my distribution $19000 + FTB $11000. TOTAL = $71000.

Actual Drawings $62000 (including $20000 wage) + actual FTB $15000 + Carers Allowance $13200. TOTAL = $90200 receivable by June 30 which will show on our bank statements but the ANZ don't care!

Ian, one Broker I spoke to told me they would all only take our Taxable Incomes and the ANZ was our best bet but she was confident they would say no. They're giving us the land Loan so she was wrong about that! I approached ANZ myself. I have also spoken to a Broker at Echoice who advised me to apply after our Taxes are done for this year. That's fine, but doesn't help us now.

Regards,

Nicki

 

[The Sniffer]

Seems to me you’re confusing the distributions a little bit.

As far as I am concerned there is no gross and net distribution; only distributions.

I would assume you are calling your 'distribution' a 'gross distribution'. This appears as income in your personal tax return (distributed from the trust)

You then have personal tax deductable expenditure. For example you might have a car in your name or claim some of your mortgage interest or home bills because you have a home office. Therefore you have tax deductions in your personal name. You are referring to your taxable income (after expenses) as your net distribution???

Wondering if this is correct?

If so I might be able to expand on your problem.

 

[Pesty]

Yes Sniffer I have definitely confused the two. The Trust Tax Returns and Financials only state the $24476 figure as a Distribution. This appears on our Personal Returns as our share of NPP Income. Then (as you stated) our deductables come into play reducing the above figure to what is stated as a Net Distribution of $21000 and $19000 respectively and this is also our Taxable Income figures (except for my hubby who has the $20000 wage on top).

Regards,

Nicki

 

[The Sniffer]

OK

So depending on the expenses. Personal expenditure is often ignored by lenders. They generally take net business income (distributions), plus wages and add-backs in the company (as a % of your ownership) plus total gross personal income (not net).

It is an area of common confusion and open to interpretation. It is a little bit hard to expand without seeing the full tax returns. In some cases personal expenses need to be taken off the gross figures - other times they do not (depends on the nature of expenditure).

Cant really go in to too much further detail without more info. Any chance you know a good business banker rather than a home loan broker / retail bank manager?

 

[Pesty]

Thanks again for your time Sniffer. We have a possible Construction and Land Loan we could apply for with the affordability principles you have just outlined. It still falls short of what we need to build the home we want but there may be ways around it. Still tooing and frowing our options. Our local Business Banker hasn't been of much help. To illustrate this, we have applied (the Business, not us personally) for an equipment Loan and 3 months later we are still waiting for our Loan funds! It hasn't been the affordability that's the problem, just one paperwork stuff up after another. We'll see how we go!

Regards,
Nicki