Servicability & Tax Refunds/PAYG



From: Michael Armstrong

Hi all. Seeking some advice as I'm still learning it all...

Over the last 2 years I have purchased 3 IP through a major bank. The basis of the approvals were a well prepared financial plan, the salaries of both my wife and I, rental income was considered and of course the equity in our own place. I got the loans without factoring in any tax refunds, and my servicabilty now based on the salaries and rents only is at a limit.

The question I have is that I always read about IP costing say eg/ $50 per week and this is obviously based on the tax benefits / refunds obtained or if you use PAYG. I have calculated that I could afford another IP if I factor in these benefits. The question is, will the banks accept pre determined / potential tax refunds as a way of servicing the loans? Sorry for the long winded story however I thought the more info i provide the better advice I may receive. Regards, Michael
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Reply: 1
From: Anthony C

I asked this to my bank once, and the only factor in income. They said if they start factoring in tax returns, then they should start factoring in grocery bills, electricity bills, where do we draw the line.
Besides, the income that they factor in is gross not net isn't it. So they aren't subtracting tax from the DSR equation, so how can they add it in?
In the end, I helped my bottom line dsr, with a Cash flow positive property, also other multiple income streams will be taken in.


"Let us so live that when we come to die even the undertaker will be sorry."
--Mark Twain
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Reply: 2
From: Rolf Latham

Hi Michael

Yes and no, some will, some wont, and what is acceptable this week will not be next week. Once you get to the edges of the service envelope then the rules are very very grey.

In addition you tend to find what they give with one hand they take with another. Lenders that look at tax deductions include

St George, ING and a few limited others. The trick is to set up the portfolio so that you alwasy have the flexibility to move to a lender that wants to play.

If you have lots of equity the uncle Steve at may be able to help you with one of his maximum leverage strategies.

Have fun, good position to be in actually !

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