Will an instant asset tax write off decrease my borrowing power?

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Joe
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Joined: Mon Jun 10, 2019 2:33 pm

Will an instant asset tax write off decrease my borrowing power?

Postby Joe » Mon Jun 10, 2019 2:34 pm

Hi, I purchased a couple of machineries worth $15,000 and $25,000 respectively for my business. I’m thinking of reducing my taxable income with the instant asset tax write off this year however, I’m concerned that when I apply for a home loan come July that my borrowing power will be reduced due to my lower taxable income. So, my question to you is will an instant asset tax write off decrease my borrowing power?

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Otto Dargan
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Re: Will an instant asset tax write off decrease my borrowing power?

Postby Otto Dargan » Mon Jun 10, 2019 3:43 pm

Hello Joe. Welcome to the forums.

Not necessarily, some of our lenders can add back these special one-off tax write-offs to your taxable income to increase your assessable income. As you may be aware you can claim the tax write-off of up to $30,000 for each asset. For example, if your taxable income was $100,000 and we add back the $15,000 and $25,000 write-off, your assessable income will be $140,000. These are considered to be capital expenses and expected to help you earn more revenue from your business.

For self-employed borrowers, we can either go with a full doc loan with two years tax returns and business financials or we can go with a low doc loan.

Typically, we can add back the following expenses to your taxable income:
  • Extra superannuation contributions.
  • Losses carried forward from prior years.
  • Negative gearing deductions from your investment properties.
  • One-off expenses such as moving your business or a lawsuit.
  • Instant asset write-offs (e.g. the special $30,000 instant write-off in 2019)
  • Trust distributions to family members for tax purposes.
  • Depreciation.

We specialise in self-employed home loans.

Give us a call on 1300 889 743 or fill in our free assessment form to discuss your situation and find out if you qualify.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Joe
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Joined: Mon Jun 10, 2019 2:33 pm

Re: Will an instant asset tax write off decrease my borrowing power?

Postby Joe » Mon Jun 10, 2019 4:21 pm

Thanks for clarifying that. My f.y. 2018’s taxable income was a lot less than 2017’s taxable income which was slightly over $100,000. My question is how do they determine which year’s income to use for serviceability or do they use an average of both?

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Otto Dargan
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Re: Will an instant asset tax write off decrease my borrowing power?

Postby Otto Dargan » Mon Jun 10, 2019 4:54 pm

Hi Joe,

Different lenders use different methods to calculate assessable income from the self-employed borrower’s tax returns.
  • Some lenders will use the lower income figure from the last two year’s taxable income.
  • While some lenders will use the most recent year’s figure for their assessment.
  • Other lenders will average the last two years income or take 120% of the lower income.
  • Some lenders allow you to add back one-time capital expenses to your taxable income while others will not allow it.

Applying with the right lender who offers the most competitive interest rate and allows you to maximise your borrowing power is key.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Joe
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Joined: Mon Jun 10, 2019 2:33 pm

Re: Will an instant asset tax write off decrease my borrowing power?

Postby Joe » Mon Jun 10, 2019 6:05 pm

Why is it so convoluted! Is there a difference between a risk fee and LMI? Or are they the same? - Thank you for your patience by the way.

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Otto Dargan
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Re: Will an instant asset tax write off decrease my borrowing power?

Postby Otto Dargan » Mon Jun 10, 2019 6:31 pm

Hi Joe,

Risk fee and Lenders Mortgage Insurance (LMI) are similar in that they’re both there to protect the banks in case borrowers default on their mortgage. However, unlike LMI, risk fees are self-insured by the lender themselves instead of a third party. Some lenders effectively self-insure their own loans by charging a risk fee instead of obtaining LMI. The LMI insurer is typically a third party insurer like Genworth or QBE.

Just like LMI premiums, risk fees also tend to vary widely between lenders. You can compare LMI premium rates or you can use our LMI calculator to find the cheapest LMI.

Give us a call on 1300 889 743 or fill in our free assessment form to find out if you qualify for a self-employed home loan.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts


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