Dividends and share trading

Hi all,

I will be looking for finance in the next few months and I am trying to understand how banks deal with 1) dividends and 2) profit/loss from trading a few shares.

On dividends do they just take the income into account in serviceability or do they want to see you are holding shares for the long term?
Do they accept dividends from all companies or just blue chip?
Do they accept 100% of dividends or take a percentage?
What do they need to confirm the dividends, tax returns or statements from share platform?
Do they take dividends from the last tax year, year-to-date or last full year to application date?

Then any profits/losses I have made on trading the shares, is this included in serviceability or ignored? If I make a loss I don't want this to reduce my serviceability.

Before the end of the tax year I am trying to make some decisions to maximize serviceability.

Thanks

 

Generally, share and dividend income is negligible when it comes to servicing impact unless you have a huge portfolio. Many lenders will use a deeming rate of 2% or similar, then take only 80% of that. Many will want to see 2 yrs tax returns to use them.

Losses won't impact servicing as it's not a debt.

 

Varies with lenders but best to assume not taken into account. Some may take 80% where held for 2 years or more.

Trading income won't be taken into account generally but could be in some instances

 

Ah the DARK side. Hello Bots, Hello Insto's.

 

Unless you are trading as a business and its a reliable source of major income and holding a lot of shares and its material they are more likely to ignore things or just rely on last years taxable income (which can include grossed up franking credits) etc. Others have share of business profit etc - All vary.

I have seen people one year with high income from trading report a large loss the next year. Obviously a lender may look at that. But have never seen a lender value shares to judge your capability and base decision on a perceived risk.

Large unfranked income (eg share of business profits, trust distribution etc) may also be detrimental if it means a tax shortfall. Lender may pick up on that.

 

Adding to OP's questions, what about for dividend investors like most people in this forum who would have consistent growing dividend? can they use the dividend income to increase the servicability (I know most won't touch property but in general)?

 

Wasn't that outlined above? Take 2% of your portfolio and then shave another 20% off that?
Sooo take the balance of your portfolio and multiply it by 0.016 to get your answer. At least that's how I'm reading Jess' figures.

 

If I invested 1m with no capital gain/loss but 5% return in the last 2 years, and no other income, does the bank access my income = 50k * 0.016 (only $800)?

 

From what I understood from the post above, they ignore the actual returns and calculate it as 0.016 x 1m = 16k

 

got it, thank you

 

Thanks all, 2% or actually 1.6% after the shave is pretty small unfortunately. I am looking for ways to increase serviceability. I will start a separate thread about it.

 

OP please allow me to use this thread since you've got the response you're looking for.

This one still relates to taking dividend vs participating in Dividend Reinvestment Plan (DRP).
Let's consider these conditions:
1. Fully franked dividend
2. DRP price is at a reasonable level (I know we don't usually know about the price until or after the closing date but for this discussion, lets assume it will be reasonable one)
3. Individual tax rate > 30%

For now, let's ignore the potential issue in record keeping/messy CGT calculation with DRP etc.

With the conditions above, I think there's a benefit for the investor to participate in the DRP due to:
A. indivual tax rate is higher than company tax (30%) then DRP will delay the tax payment as long as possible (CGT only at the sell time)
B. allow the asset to accumulate faster; however, less beneficial to investors who only rely on dividend income and also, portfolio would become more concentrated

Can anyone point out any other benefits or disadvantages in the above situations?