Loan Tip: Timing of Setting up Companies

Discussion in 'Loans & Mortgage Brokers' started by Terry_w, 8th Oct, 2020.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If you plan on setting up a company and becoming its director this can have an impact with loans. Lenders will want to see the financials of every company you are a director of, generally. Or they will want a letter from an accountant to confirm the company is not running at a loss.


    Keep this in mind if you are refinancing or planning to get cash out. If the company will be borrowing, it’s a different story of course – it will need to be the applicant on the loan.


    Note that this doesn’t apply to trusts are trusts are not legal entities and not searchable. No lender would know that you have set up a trust or a trustee.

    Where a company is trustee the timing issues still apply though.


    Example

    Bart has a property loan he wishes to refinance. At the same time he is about to set up a trust with a corporate trustee of which he will be director. He sets the trustee company up on the Monday and on Tuesday he lodges his loan application.

    The lender does an automated credit check and sees he is a director of the company. They request full financials or a letter from an accountant stating the company has no financials.

    Bart used to do his own tax returns and the company does not have an accountant. He now has to approach several accountants to ask for a letter. Most are suspicious and refuse to entertain the idea of writing one. “How do I know whether the company has any liabilities?” one blurts out.


    Had Bart lodged first he could have saved himself the hassle of all of this.
     
  2. JohnPropChat

    JohnPropChat Well-Known Member

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    This happened to a family member, few days before settlement they setup a Corporate Trustee for their family trust. Bank queried it, they told the Bank it was a non-trading entity setup as a Trustee. Bank took their word for it and let it go. They did have strong servicing so the Bank probably didn't push it further for a letter or financials.
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    note that this doesn't apply to trusts as trustee positions are not recorded anywhere. But it will apply to a company that is acting as trustee.
     
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  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    There is also the tax return issues to consider. Setting up a trust or a company in June and getting a TFN would mean a tax return needs to be lodged even if there is no income. It could be a nil return though and very simple
     

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