serviceability concern - wages income but business loss

[Lollie]

Our accountant has given me figures for 2013. My taxable income has come back at $74K this includes my wages income and a business loss of $22K. ie if there was no business loss my taxable income would be $96K.

For 2012 and 2011 my taxable income was $68K which included my wages income of about $50K and a business profit of around $18K each year. I bought a property in Jan of this year based on the last 2 years tax returns.

I want to know if a business loss this year will affect my servicability.
I'll appreciate all questions and feedback, thanks so much.

 

[Terry_w]

Yes it would.

It is not a good idea to run a business -dangerous and tax problems. Why not consider a restructure and have a company run the business.

 

[Lollie]

Thanks Terry

Damn it. It's a husband/wife farming partnership ABN. My husband operated with his own ABN as a sole trader for many years. Then, (as a sole property investor), I decided to try and increase my taxable income through the farm and hence a partnership ABN.

I don't need to be part of the partnership now, as my wages have increased considerably.

Wouldn't a company structure in this case be expensive and unnecessary?

I can get the accountant to adjust the figures to be more favourable and of course it will mean my $12k refund will perhaps turn into something payable at what level, I dont know. what would you suggest? thanks so much

 

[Terry_w]

Costs $233 per year to run a company and accountant fees - most of which probably wouldn't change.

A company is a good idea for trading as it offers limited liability. If the business is sued the company wears it and not the individual (subject to a few exceptions).

In a partnership there is joint and several liability. The partnership doesn't exist as a person so one, both or either of you would be sued. You are responsible for your partner's incurred debt even if you don't know about it. A partnership is the most dangerous set up know to man!

 

[Aaron_C]

Business loss is offset against your PAYG income for servicing, no doubt.

 

[Shahin_Afarin]

What is the LVR? If the LVR is 80% and you are not reliant then you can utilise Westpac's fasttrack policy in which they only need the NOA's for self employed. They don't require the whole box and dice.

If the above is not an option then you need to choose a lender that has a higher servicing capacity even when taking into consideration the loss.

 

[Lollie]

thanks very much for your replies - will definately look at a company, never thought about that before.

none of the business debt is in my name - no loans, not the business loc,not the machinery or vehicles nor am I guarantor on anything.

I would be using 20% deposit from my own property LOCs already set up. I was going to try and pull equity from another property and set up another LOC first though. Would it be easier to forget that and just buy with the 20%I have?

I think I also need to wait for my new second job which I've had for 6months to be 12 months? even though my main job income is considerably higher this year.

 

[Peter_Tersteeg]

To try answer the basic question of will a business loss affect your serviceability, there isn't a simple answer. Lenders will ask questions about the business loss and may discount it if it can be demonstrated that there were non-recurring circumstances which lead to it. It also helps to be able to demonstrate that things are recovering.

I agree with Terry that it's better to be operating under a company structure instead of a partnership or sole trader structure, especially in these circumstances. In a partnership the company losses can be isolated with in the company and may effect the individuals cash flow if the loss isn't an ongoing one. Keeping boundaries between business and personal finances doesn't eliminate them from effecting each other, but it does make things cleaner and clearer which can work to your advantage.

 

[Lollie]

thanks very much for your replies - will definately look at a company, never thought about that before.

none of the business debt is in my name - no loans, not the business loc,not the machinery or vehicles nor am I guarantor on anything.

I would be using 20% deposit from my own property LOCs already set up. I was going to try and pull equity from another property and set up another LOC first though. Would it be easier to forget that and just buy with the 20%I have?

I think I also need to wait for my new second job which I've had for 6months to be 12 months? even though my main job income is considerably higher this year.