Consulting work & Bank servicing

i work a full time job but a former colleague has been asking me for a number of years to do some consulting work for him on the side. I have always said NO, as I really don’t have the time, but I am looking to buy a property soon, so the extra income would certainly help with servicing re the bank loan.

How do I maximise the (servicing) benefit of this? If I sign on as an independent contractor, will the dollars count?

Or should I aim to be a salaried PAYE employee?

This former work colleague has been chasing me so he is quite open to whatever employment arrangement I would suggest.

 

If it’s PAYG you’ll have a better chance of using the income for servicing - will depend on duration of contract, LVR, etc

If it’s self employed work then you generally need to demonstrate two years earnings.

Cheers

Jamie

 

Would definitely suggest PAYG if possible especially if you are looking to purchase soon. Also keep in mind some lenders will not consider if you're still in probation period. Self employed ...Jamie and Rolf already explained why.

Unfortunately most people weren't aware the implications of having an ABN - it's usually 12-24 months minimum (unless you want to go to specialist lenders which are costly) before business income can be used to qualify for a loan.

Cheers,
David

 

Another couple of questions for the forum.

Further to my earlier post, I am now also considering taking an (30%) equity stake in the business (boutique consulting firm) that I will be doing work for. So, I will get a PAYG salary and a share of overall profits.

(BTW, this is largely about increasing my income and serviceability. That said, I am not inclined to work my butt off for a wage over next 5 years to find this firm gets sold for 7 figure sum and I get zip. This employment arrangement and ownership stake raises a raft of legal and commercial issues which I am working through and don’t want to go into here (yes, I am getting legal advice))

The key issue I want to cover off here is the serviceability points that only experienced brokers can answer:

1) I assume the PAYG component will generally be counted for serviceability (provided employee has had 3 months of continuous employment)).

2) the distribution of profits from the 30% equity stake will only be counted after 2 years (or having it in last 2 years tax returns). I am not too fussed about this as ‘share of profits’ will be small given most surplus goes to the consultant doing the hard work;

3) Will 1) change if the PAYG is variable (consulting work is chunky by its nature). As a half way house, should I be aiming for an employment arrangement with a set amount (retainer) + bonus to maximise serviceability v week to week variable PAYG.

 

If you are an owner of the company or business you might be treated as 'self employed' and paye might not be taken into account.
Some banks have a 25% figure of ownership for this sort of thing.

 

If you're asking if your equity stake in the business will help with your serviceability, it won't. There's no guarantee that the company will actually be successful and it's not an ongoing source of income.

That said, ownership in a successful business is an excellent pathway to wealth.

 

You will still be treated as a self employed applicant so you need to meet those requirements, i.e. 2 years ABN registered and 1-2 years full financials depending on the lender.

Secondly, if you are a joint director of the company and if the company retains any income when some lenders will not accept any of this income (some will but you will be limited in lender choice). You can look at distributing the income to another company that you own 100%, i.e. sole director in order to a) still retain the profits and b) be able to use that income for servicing purposes.

The only lender that will look at this by exception is ANZ business banking - they can work off projections.

If you were a medico though you would have more options.

 

Thanks Terry. Another option may be to not take an ownership stake in the business, but seek a term in the employment contract that in the event the business is sold, I receive a share of the sale proceeds.

 

That has CGT consequences.
You might also be a beneficiary of a trust with the trustee owning the shares.