Press releases
Self-employed borrowers beware
18/05/2010
Self-employed business owners taking advantage of every claim at tax time could be severely limiting their borrowing capacity.
Smartline Personal Mortgage Advisers Managing Director, Chris Acret, said independent business owners, contractors, freelancers and consultants in the market to buy a home or investment property needed to be mindful of the tax deductions they were making or intended to make.
“We see many self-employed people whose accountants have been doing a fantastic job in legally minimising their client’s taxable income – and that’s great, because that is exactly what they’re supposed to do,” Mr Acret said.
“However, the issue for business owners is that when it comes time to demonstrate their ability to service a loan, they can’t produce the evidence because their tax returns show low net earnings – usually year on year.
“With the withdrawal of no-doc loans, this can mean reduced access to funds for investors and the self-employed.
“Additionally, lenders will only allow certain deductions to be added back into your earnings – things like depreciation, director’s salary, one-off capital expenses and extra superannuation payments.
“From a lender’s perspective – based on what’s on paper – this shows a reduced capacity to repay the debt and can severely limit how much can be borrowed for either an owner-occupier or investment property.”
Mr Acret cautioned new-to-market contractors and consultants – including people operating party-plan styled businesses.
“Self-employed people who are considering borrowing to invest in property should plan ahead and weigh up what is best for them financially,” Mr Acret said.
“In the current environment there is now much closer scrutiny of a borrower’s ability to service the loan – and consistent business earnings are now more important than ever.
“We suggest business owners work with their accountant and personal mortgage adviser to ensure they are taking in to account their borrowing capacity when preparing their tax returns, particularly if they plan to access finance for buying a home, or for investment or business purposes over the next year.”
As always, talk to your Smartline Personal Mortgage Adviser for more information.
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