Tax Minimisation & Borrowing One of the advantages of being self-employed is we get to pay our tax after expenses have been deducted, unlike PAYE salaries and wages where tax is deducted first. The downside includes unpaid holidays, ACC levies, sick leave and no Kiwisaver employer contributions. As business owners we pay our accountants to minimise tax and for those of us with rental properties, tax can sometimes be minimised further. Whilst paying minimal tax is a relief, it can affect us when we come to borrow money for a home. I recently had an inquiry from a self-employed gentleman quite chuffed at how his accountant assessed his financials in a way he made no taxable income. Despite no ‘provable income’ he had a cash deposit available and expected banks would lend substantial sums without any proof of income. However he was getting turned away based on no servicing ability. Regardless of the size of deposit, banks will almost always need proof of income to show you can service the loan. So while being self-employed and having a low taxable income is great on one hand, it can have an adverse effect on the other when you come to borrow money. In the home loan market we can still access non-bank ‘Low Doc’ or ‘Self-Declared Income’ loans with at least 25-35% deposit but higher interest rates may apply. Whilst some clients have to pay higher interest for the privilege of these loans, it’s often offset by their lower tax bill. Some business owners will have the taxable income to service a loan but may not have up to date financials ready at application time. If the deposit is in that 35% + range there are still a couple of banks providing ‘Low Doc’ loans where the client declares income. However they come with strict conditions and are not easy to get. For a free copy of our First Home Buyer Guide contact our team 7 days a week on 0800 000 517 or email [email protected] for all your mortgage and insurance needs. The above article is general and is not specific to any person.
Posted on: Tue, 25 Jun 2013 00:17:49 +0000
Trending Topics
Recently Viewed Topics
© 2015