Hi Mortgage Brokers, Finance Gurus and the like.
I had to post my confusion and I apologise up front if I rant.
I went to Westpac today looking for some cash for obviously a dumb reason (I’m joking) like investing in some real estate, maybe I told him it was for the casino, I’m not sure.
Anyway. I get that I’m considered Self Employed but why is there inconsistency in the rules.
I’m a 50/50 shareholder of a Pty Ltd, the other shareholder is not family, not related (thank god), I would then be probably into things like Star Trek (no offense to you Trekkies).
I am also a Director and so is the other Shareholder.
If I was appointed to the board of directors at Westpac would that make me self employed? If I own shares in Westpac or any other institution would that make me self employed?
So my wife an I have a property (in her name), value 600-650K, with approx $350K owing, married, 2 little rug rats (although I feel sometimes they are little Yodas re-living every star wars moment from my youth) anyhow, we wanted to buy a townhouse which I believe after some serious research was undervalued for approx $280K, when the deal is done approx gross yield of about 7.0%.
The bank classed me as self employed, we pay wages to employees, and yes I’m one of them, it’s a separate legal entity and I get a wage, payslip, super and submit group certificates as an individual of this company.
The Loans Manager said if I was a sole trader then we could add depreciation but because I’m in a company then I can’t.
The serviceability is where this rant starts, if you calculate my last payslip like they will with my wife (who only started this job about 4 months ago) than everything is ok.
But no, I need last 2 years group certificate, fine, last years sucked balls, my worst year in about 15, for a total of $23K, year before $70K or something and an average above that for the last many years, so I only got assessed on last years group certificate, not the average of 2 years and certainly nothing to do with year to date.
If I was truly self employed as a sole trader than my business earnings would come into play as well, no not for a company.
So I’m a PAYG when it suits and a self-employed when it suits. WTF?
This sent me to the nut house and I’m sure many will say “that’s what you get for going to a bank manager” who knows.
Maybe I should have gone straight to a reliable Mortgage Broker who knows there stuff.
I changed everything to Westpac 10 months ago because of the service I got from one particular HFM not because of the bank itself. He left for a better deal in the mines ..
Any thoughts? (Thanks for at least reading this far – it felt good to vent) :-)
Hi Dave,
I’m sure some of the finance guru’s on here will provide some insight. As you mentioned you are self employed. Generally what the bank will require is 2 years financials (on the rare occasion 1 years financials) and by financials they will want company tax returns and individual tax returns. In this day and age it is too easy for someone to do up a payslip or group certificate and say hey i’m self employed and on x amount of dollars. It is my understanding self employed income is assessed on taxable income verified by tax returns. If there is a large variance in the last 2 years then the lower amount is generally used towards servicing unless there is an exception to policy and a genuine explanation. If the company retains a profit and your are 50% shareholder then you should be able to use 50% of the company profit towards servicing and some banks will allow depreciation to be added back for servicing. On the flip side you are liable for any loss the company makes and this would be deducted from your income declared on your individual tax return.
It doesn’t sound like your lender was very helpful in explaining what is required and why. I would definitely try and source an experienced lender or broker and hopefully they will be able to help you out or at least give you some options.
All the Best.
Shane.Hi Dave,
The problem you have is if you want to use company profit then you would need the other shareholder director to guarantee you. Stupid I know but the logic is the bank doesn’t want to rely on income that your business partner could withhold.
Your only shot is to supply interim financials prepared by an accountant for this year supported by BAS statements to confirm turnover and the last say 4 years ITR’s to show last year was an anomaly. Also you would need a good explanation as to the decrease in income last year preferably supported by n accountants letter. If you could provide all that I think you would be able to get an exception made. Either that or look at a low doc type option.
Thx, Marty
Marty McDonald | Mortgage Experts
http://mortgageexpertsonline.com.au/
Phone MeHi Shane & Marty,
Thanks for your responses, really appreciated.
Yes WP definitely wanted ATO ITR receipts for me personally, so I prepared 5 years worth even though they only requested 2.
I did this and explained the personal wage drop for last year, and also then showed personal YTD for 2013-14, which backed my case.
The problem you have is if you want to use company profit then you would need the other shareholder director to guarantee you. Stupid I know but the logic is the bank doesn’t want to rely on income that your business partner could withhold.
I was not entitled by his ruling to use any of the Company profits to justify income, nor was I able to get depreciation consideration because my structure was a company which to him wasn’t a true “sole trader” if I was a “sole trader” then my business and it’s figures would have been accepted.
I agree with your liability statement, I was just perplexed with the way it was handled.
I am only half of the equation as my wife is the other part of this and she skips through with a brand new job (4 mths in), which could end at any minute, I say that because she was made redundant last year when her Employer sold the company and gave staff short notice, there is absolutely no job certainty with her position when someone else is in charge, she does a great job and has never been fired from a role but as far a job security in this climate, it doesn’t take much for an employer to make seriously, quick life changing decisions.
In my company we have at least control over how we run it, how we get paid, so on and so forth.
It doesn’t sound like your lender was very helpful in explaining what is required and why. I would definitely try and source an experienced lender or broker and hopefully they will be able to help you out or at least give you some options.
Thank you, and yes that’s exactly what I’m doing.
I can honestly say a week later and a couple of rants that I’m grateful for the slap Westpac gave, I had gotten lazy, got use to things easily happening and thinking that I was being served well with some of the services I source and pay for.
This last week has returned me to the grindstone and passion I once had 20 years ago when I had nothing and I had to fight like many others tooth and nail for every inch, except now my position is completely different to then and so I will only extract the very best from services I wish to pay for.
Either that or look at a low doc type option.
They did offer to do me and my wife a low doc option, it made me laugh so hard the guy thought I was nuts.
A 60/40 split, with an LMI of over $12,800 on $300,000, then he wanted full company records (standard for low doc I know) and a microscope with a bonus pair of rubber gloves for bend over and touch your toes finale.
Thanks again! :-)
You own part of the company and are director = clearly a case of self employment.
Westpac is a public company – hugely diferent to a private company.You will generally need 2 years financials for yourself and the company they will take into account your wages and your share of the profits plus ad backs such as one off expenses, some interest, maybe depreciation etc. Most lenders will also average the income over the last 2 years. Not all.
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 feedback Terry.
plenty of lenders to 80% for self employeds out there, only need accountants letter .. rates are close to major banks now from 6%
I would hardly say plenty but there a few who will accept an Accountants declaration solely.
Most want 2 from 3 Accountants letter / BAS / 6 months trading statements.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Great tips Modonnell, I never would have thought about the Accountants letter, I thank Richard for his 2 cents and would have to agree that “plenty” would be the same as me saying my wife has always “100% loved me” for the past 15 years, which I think is a bit of stretch unless of course Modonnell you have a secret *hush* *hush* list you would like to post in this very private (no-one will ever read this far) post.
A friend of mine told me to stop playing the game with Westpac and just get a line of credit against the existing equity to whatever the amount can be and take that to someone as a deposit on a standalone deal which I have researched.
It sounded so simple in theory and I did feel a little stupid for not even thinking it, but that’s learning for you.
Thanks again, appreciate the feedback.. :-)
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