15 Jun 2023 Podcast: Q&A – Your Self Employed Scenarios Answered

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Join Maddie and Evelyn as they answer your questions surrounding your self-employed income and scenarios.

We start off talking about how long you can use 2022 financials for servicing or if your profits are trending down. We also go through your options if you’ve transitioned from PAYG into sole trader income and how a bank views this when you apply for a home loan. We also talk about what documents you need to provide for an application what this looks like if your work is contract based, and how tax works being self-employed. We have a few questions that came through surrounding trusts that we briefly touch on.

If you have any questions for us, please feel free to reach out through social media, emails or our website and we’d love to help where we can!

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You Have My Interest is brought to you by Everlend, a mortgage and finance broking firm built for the purpose of educating and empowering you to make informed financial decisions tailored to your wealth goals. Find out more and book in your free initial consultation at
https://www.everlend.com.au/

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There’s plenty more great content to come … so make sure you subscribe now on Apple Podcasts or Spotify so you don’t miss a thing.

You Have My Interest is brought to you by Everlend, a mortgage and finance broking firm built for the purpose of educating and empowering you to make informed financial decisions tailored to your wealth goals. Find out more and book in your free initial consultation at ​​https://www.everlend.com.au/

Get in touch:

Find out more about You Have My Interest at everlend.com.au/podcast and connect with us at podcast@everlend.com.au

You Have My Interest provides information and educational content relating to mortgages, finance and property. You Have My Interest‘s content is general in nature and does not take into account the individual financial, legal or tax needs or objectives of its audience members.

It is not intended as a substitute for professional advice. Listeners should seek out a licensed professional to discuss their individual financial, legal and tax requirements.

If you need mortgage or finance advice tailored to your own personal situation, contact Everlend today for a free consultation. Everlend are authorised credit representatives of Loan Market Pty Ltd, Australian Credit Licence number 390222.

Podcast produced with Apiro

 

Please find a Podcast summary below with the interview highlights:

The episode opens with an acknowledgment of the traditional custodians of the land and introduces a quick Q&A session on self-employed income and related mortgage scenarios. Evelyn answers rapid-fire questions from Maddie, providing practical insights for self-employed borrowers.

Key Points Discussed:

  1. Using Financials for Servicing:
    • Most banks accept financials up to 18 months old (e.g., 2022 financials valid until 31 December 2023).
    • If income decreases year-on-year, banks typically use the lower figure unless valid add-backs (e.g., asset write-offs) apply.
  2. Transition from Pay-As-You-Go (PAYG) to Self-Employed:
    • Refinancing after switching to self-employment can be harder due to reduced lending options, especially if ABN registration is under 24 months.
    • Some lenders may accept shorter ABN histories (e.g., 18 months) depending on the borrower’s circumstances and industry.
  3. Documentation Requirements:
    • Banks do not require invoices for servicing but may request them to verify business continuity.
    • Business bank statements are typically unnecessary unless using low-documentation (low-doc) loans.
  4. Contract Work Classification:
    • Whether a borrower is assessed as PAYG or self-employed depends on their employment arrangement. If they are responsible for tax and super payments, they are treated as self-employed.
  5. Tax Considerations:
    • A tax debt is a red flag for banks and should be cleared before applying for a loan.
    • Late BAS payments may not directly affect borrowing unless they signal poor financial management.
  6. Business Loans vs. Cash Out:
    • Banks generally discourage using residential property equity for business cash injections due to the risk of business failure.
    • Business-specific loans (e.g., invoice financing) are preferred for working capital needs.
  7. Purchasing Under a Trust:
    • Trust structures can complicate servicing as banks assess only the net profit distributed to beneficiaries, limiting negative gearing benefits.
    • Trust purchases offer asset protection and tax distribution advantages but are independent of being self-employed.

Practical Takeaways:

  • Self-employed borrowers must carefully plan their financial reporting and timing to maximise borrowing capacity.
  • Engaging both an accountant and a broker ensures alignment of tax strategy and lending goals.
  • Understanding unique policies (e.g., for low-doc loans or trusts) can help borrowers navigate complex scenarios.

The episode concludes with a reminder to subscribe and reach out for tailored advice, with a Q&A session planned for the next episode.

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