Hi all.
My wife and I are currently self-employed and wish to further our investment property portfolio. We have been self-employed for nearly 5 years now and have financials completed up to 31/12/09. Each year we have been in business our P&L has always increased by at least 25% and our value book is increasing as well.
My main query is when appling for further finance of up to 90% for a new investment property, which do the financial institutions favour more – self-employed or employees?
The reason I ask this is because I feel that the brokers we have been working with find it too difficult to work with us as self-employed because they just seem to drag their feet with everything eg weeks to get back to you – after I chase them up – they advise they will see where things are up to. Very frustrating I find. When I was an employee many years ago, I found I got replies for finance in a very efficient manner.
The self employed generally can claim more tax deductions than an employee can. So this results in the self-employed having less taxable amount on the TNA than an employee. Eg employee earns $100,000 and his taxable income on their TNA is $90,000. Self-employed may earn the same amount of $100,000 but with their legal tax deduction eg home office, car, etc, the taxable income on the TNA maybe $50,000.
What are the opinions of the financial institutions in this regard?
Is it is more favourable as an employee. Is it better for us to be paid a "wage" from the company rather as Drawings? This would mean, I think, paying tax from the "wage" (even though the company is already paying tax), paying Superanuation levy and paying other taxes that employers are required to pay for employees.
Thanking you in advance.
Michael
Hi Michael
Sounds to be like you have been using the wrong Broker as there is absolutely no difference whatsoever.
If you are PAYG then the lender will take your Gross income work out the applicable Tax rate and work your serviceability from there.
If you self employed then lenders will take your net taxable income, add back any wages that relate to you, superanuation etc and non recurring expenses and take this figure as your income. Of course if however you use your own phone and claim this thru the business or put the weekly grocery bill down as entertaining then unfortunately this will not aid your bottom line.
In fact some lenders treat the applicable addbacks more favourably when you are self employed as they understand the process.
Richard Taylor | Australia's leading private lender
Simply taking a wage from your own company won't help, unfortunately you will still be classed as self employed.
However this shouldn't make things overly difficult – unless you are not showing any profit at all. You just need to supply your personal tax returns and the company tax returns and it may take the broker an extra 10 min to read them – but that should be it.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for your information, Richard and Terry.
i just needed to obtain other opinions as a good friend of ours stated that when he was self-employed he found it very difficult to get finance compared to as an employee.
I have noted oter comments you have expressed in this Forum and respect both of your viewpoints.
M & L
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