Paying More Tax to Maximise Borrowing Ability

• 

  Woodinski on 03/07/2018 - 13:36

  +23

  I would suggest going and seeing your accountant as it appears based on your email that you do not understand how the tax system or banking loan systems work very well.

  • 

    Woodinski on 03/07/2018 - 13:39

    +2

    1. Not claiming deductions is not illegal but only hurts you financially (you pay more tax)
    2. Agree that you don't require an accountant if you are not making deductions, however why you would do this I am not sure.
    3. Bank will look at your total income and costs. If you pay more tax you have less "disposable income", this is not a good thing in their eyes.
  • 

    HighAndDry on 03/07/2018 - 15:10

    +3

    I expect my income will increase substantially over the next 12 months so I am sure I can service the loan. I am self employed so rather than waiting another 12 months for the next tax return, I would prefer to buy the house now.

    Wait for your income to actually increase, and then buy a house. The property market isn't booming anymore, and banks are cracking down on lending shenanigans at the moment.

• 

  follow on 03/07/2018 - 13:39

  I would think it's legal. You're giving more money to the gummint. At my first job I was clueless about tax and left it very late. Ended up paying the full amount. No need for an accountant. Use etax

  • 

    Telcius on 03/07/2018 - 15:37

    +4

    Etax is a for profit online tax return preparation business - the free online service is via myGov

    • 

      batrarobin on 04/07/2018 - 09:51

      +1

      Yeah it's now called MyTax.

• 

  ESEMCE on 03/07/2018 - 13:46

  +12

  How does reducing your Income after tax improve your ability to borrow?

  • 

    Rosace on 05/07/2018 - 06:42

    By hiding expenses, I guess, I am not a tax accountant.

    If you have a taxable income of $120,000, after tax income is $85,680 it will be better than a taxable income of $90,000 ($120,000 - $30,000 deductions), with an after tax of $67,380 + $11,100 tax return = $78,480.

    As he didn’t declare that he spent $30,000 in tools for example, for the bank it’s available money to pay a loan, therefore higher borrowing capacity as a result.

• 

  bobbified on 03/07/2018 - 13:48

  +2

  If you have legitimate deductions to claim (sounds like a big amount to claim since you think it'll make a huge difference to your borrowing power) and you don't claim it, you're going to be losing out on what might be a significant refund that you're entitled to.

  There's documents other than your tax assessments that you can use to prove your income.

• 

  tsunamisurfer on 03/07/2018 - 13:56

  +2

  The major benefit of being self employed is the ability to claim significant tax deductions that a PAYG worker cannot.

  I understand that there are challenges for the self-employed to get a home loan, but there are strategies to get around those issues, not claiming deductions is not one of them.

• 

  shaz0316 on 03/07/2018 - 13:58

  +3

  Actually a way to do it is to not claim the deductions now and get your paperwork sorted with the bank and once done with that you get can your accountant to do an amendment to your tax return to now include the expenses- i think only certain accountants are legal to do that so double check.

• 

  Fergy1987 on 03/07/2018 - 13:59

  +3

  uhhhh…..what….

• 

  Skramit on 03/07/2018 - 14:16

  Subscribing for the lols.

  Surely banks want to see your take home payslip as proof of income, not your tax return with all your deductions. Mine just wanted 3 payslips.

  • 

    John Kimble on 03/07/2018 - 14:17

    He's self employed

    • 

      Skramit on 03/07/2018 - 14:18

      +1

      Probably should have read OP properly.

• 

  John Kimble on 03/07/2018 - 14:16

  +4

  I expect my income will increase substantially over the next 12 months so I am sure I can service the loan. I am self employed

  Said every small business owner or startup company ever.

  • 

    bobbified on 03/07/2018 - 16:32

    So true! haha

  • 

    davide14 on 04/07/2018 - 08:31

    +1

    Yes, I think the question that should be asked is “if my income drops by half can I service the loan ?”

• 

  salmon123 on 03/07/2018 - 14:27

  +1

  is there any benefit to doing my tax return with an accountant if I’m not claiming any deductions?

  Accountants have more lenient deadlines … useful for some, not for others.

  will the bank question why I have made no deductions? My occupation does have a few typical deductions.

  Nope - normal procedure is to verify your income through 2 sources: payslips/PAYG Summary/Income tax assessment/bank statement.

• 

  [Deactivated] on 03/07/2018 - 14:47

  +9

  Your income and taxable income are two different things.

  By not claiming deduction;
  Your income is the same
  Your taxable income is higher
  Your take home income is lower
  Your borrowing power is thus lower

  Claim the deductions, you will have more take home income and a higher borrowing power as a result.

• 

  Telcius on 03/07/2018 - 15:41

  -1

  Are you a sole trader? Lenders will normally want to see 2 years of financials.

  If your income is climbing, start up a company and you often only require 6 months of data.

  • 

    sweefu on 05/07/2018 - 14:11

    Completely wrong.

    Income verification whether you are a sole trader or company structure are very similar.

• 

  Sofie519 on 03/07/2018 - 16:42

  Not sure where you are getting your advice or idea. Why would not claiming tax deductions increase your borrowing capacity!?

  I know some cash in hand borrowers, suddenly decide to declare more income (thus pay more tax) during the period leading to them applying for a loan.

  Just declare your income, maximize your tax deductions thus increasing your disposable income and borrowing capacity. A good broker will be able to adjust for legitimate add-backs to your loan application.

• 

  chumlee on 03/07/2018 - 16:51

  +2

  Safe to assume you're not a self employed financial advisor

• 

  whooah1979 on 03/07/2018 - 18:39

  +1

  Our lender back in the day only required three months of bank statements showing a stable income. They looked for regular payments and the word salary + name. This may have change since the brc.

• 

  kalifornia on 03/07/2018 - 19:51

  +1

  Thanks for the comments everyone.

  I am a sole trader/contractor, my deductions would be education expenses.

  Say I made 60,000 this year and I’ve spent $10,000 on education expenses. If I don’t claim the $10,000 education expenses, my taxable income would be $60,000, I pay more tax but I have more borrowing power?

  Have I misunderstood this?

  I assume banks calculate your borrowing ability based on your taxable income?

  • 

    MoonlapseVertigo on 03/07/2018 - 20:10

    +2

    I've been staring at this comment for 5 minutes trying to understand exactly what it is you're conveying. I still don't get it i'm sorry i can't be of more help

  • 

    johndowy on 03/07/2018 - 20:24

    Do it, you're right. It will help out. Did it myself. Increase your taxable income and take the tax hit now. After they give you the money, lower your tax as much as possible is the best way to go.

  • 

    Ughhh on 03/07/2018 - 20:25

    +1

    Let me try.

    So you 're worried about what it looks in the books/on paper, more than the amount of money you actually get if you claimed the deductions.

    If you don't claim, it looks like you earnt a solid $60k, but if you claim, it'll look like you really only earnt $50k, thus reduced borrowing power.

  • 

    ESEMCE on 04/07/2018 - 07:43

    +3

    No…
    It makes no sense for the banks to calculate borrowing on your taxable income.

    They want to work out how much money you have available to pay them and survive from week to week for the next 30 years.
    If you're Grossing $1 billion dollars in taxable income but taking home only $20,000/year after expenses to earn that income, the bank is not going to give you much of a mortgage cause after food, you will be unable to pay any more than a few dollars per week servicing the mortgage.

  • 

    Cluelessness11 on 04/07/2018 - 09:53

    +1

    We had to do the same in order to get a greater home loan. Talk to your accountant, we didn't add in some expenses to the business so that the income is higher, therefore paying more tax for that financial year, however got a greater loan. We also understand by doing that we are pushing ourselves a bit harder than we need to and will be living more frugally because of this though. Work out if it is worth it and whether serviceability will be an issue.

  • 

    Rosace on 05/07/2018 - 07:03

    You are 100% correct in my view. However I am not a tax accountant.

    If you have a taxable income of $60,000, after tax income is $47,724 it will be better than a taxable income of $50,000 ($60,000 - $10,000 deductions), with an after tax of $41,220 + $3,250 tax return = $44,470.

    As you have hidden the fact that you spent $10,000 in education, for the bank it’s available money to pay a loan, therefore a higher borrowing power.

• 

  onevstheworld on 03/07/2018 - 22:28

  Do you actually have 2 years of tax return? If not, my gut feeling is your chances with the majors are pretty bad regardless of that tax deductions you do or do not claim. You can thank the royal commission for that… the big banks are pretty strict with criteria nowadays. I had the misfortune of starting a loan application just as the RC was getting heated. Previously my 2 years of tax returns would have been happily accepted. This time, everything took quite a bit longer than usual, then all of a sudden the bank also wanted up-to-the-minute transactions, probably to double check my stated expenses. Thankfully it was all good to go ahead.

  You also have not mentioned if you have any other debts that will weight you down… credit card, car loans, etc. Those may affect your borrowing capacity more than your taxable income.

  I'd suggest you speak to a mortgage broker. The bank's requirements seem to be changing every time the RC holds a session… a mortgage broker (hopefully) knows the most up-to-date hoops you need to jump through. Broker MAY even be able to hook you up with a small bank/non-bank lender who doesn't have as many hoops.

  Lastly, you do have 2 years to amend your tax return. So if you don't claim deductions this year, you can always do it later.

• 

  Candour on 04/07/2018 - 09:08

  useful to read etax as it explains lots about all the intricacies of tax. useful to ring the tax office as well for free professional advice. useful to do your own tax and learn about the best ways to do tax effective investing. the deductions you gain will not reduce your income much unless you are in the croc dundee class of tax avoider.

  • 

    onevstheworld on 04/07/2018 - 10:51

    OP's question is less about tax effectiveness and more about how banks assess for home loan purposes income if tax deductions are claimed. A mortgage broker is more suited for that.

• 

  [Deactivated] on 04/07/2018 - 09:59

  -3

  Please go to an accountant. You have no idea about tax. Not claiming deductions = letting the government keep all of the money you’ve paid to them. Or possibly paying them more if you haven’t paid enough so far.

  No deductions = less money to pay mortgage.

  • 

    [Deactivated] on 06/07/2018 - 20:09

    Negs but no responses…

    He talks about borrowing ‘ability’ not borrowing fraud. More money means more ability to repay your mortgage. Having the bank lend you more than you can afford is idiotic.

• 

  hassy150305 on 04/07/2018 - 12:53

  +2

  I have seen in practice many sole traders and even companies, not declare expenses or declare expenses as private (in the case of companies), in turn increasing the taxable income of the entity.

  This as done solely for the purpose of obtaining a loan from a bank and does assist. The banks do ask about other outgoings and the 'undeclared or private expenses' are still outgoings that should be declared to them. So the net effect in doing so would in fact be nil.

  If these were to not be disclosed, it would be dishonest and doing so would be provided them incorrect information for them to assess your borrowing capacity and serviceability.

  Sometimes, being denied a loan can be a good thing if you cant afford to service it in your current circumstances.

  • 

    HighAndDry on 04/07/2018 - 12:55

    +2

    Sometimes, being denied a loan can be a good thing if you cant afford to service it in your current circumstances.

    It's gotten to the point where the banks get blamed for people overstating their income or misrepresenting earnings to get a loan that they later can't repay. Personal responsibility's gone right out the window. We get more than a few posts asking: "The banks lent me all this money when they should've known I couldn't repay, how can I get out of it?" Utterly ridiculous.

• 

  miwahni on 04/07/2018 - 21:27

  +3

  Speaking as a credit assessor for a non-bank lender - yes, we look at your net profit before tax. So that's your gross income, less deductible expenses, and that is the figure we take as being your income. The fewer deductions you claim, the higher NPBT, the better borrowing power you have. (of course all dependent on your personal circumstances, other debts, living costs etc). Some items can be added back eg a portion of depreciation, or expenses which your accountant identifies as being one-off expenses in some circumstances.

  At my current workplace we look at two years' returns and use either this year's NPBT, or last years' + 20%, whichever is lower. At my previous place of employment, the rule of thumb is to use the current year provided income is trending upwards. Other banks use an average of the last two. A good broker should be able to look at your return and know the best place to submit your application.

  TL:DR; short version is that the fewer deductions you have, the higher your NPBT, the better your borrowing power.

  Good luck.