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Serviceability and Directors Franked Dividend

Discussion in 'Property Finance' started by opal3259, 12th Jan, 2016.

  1. opal3259

    opal3259 Well-Known Member

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    Hi Folks,

    One for the brokers here.

    Is it safe to say that some lenders will treat a directors franked dividend as income towards serviceability and others wont?

    Working on my 2015 personal tax return and was just about to email the accountant about it... but figured here's probably a better place to post.

    Cheers.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Most lenders will look at the overall picture of you and the company (unless you don't own it).
     
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  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    As usual, lenders will want to see ongoing evidence of the income, so they'll do a few more checks than simply looking at the 2015 return. They'll also want returns for the company, they'll probably do a company search to verify that you are a director and take a look at the ABN.
     
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  4. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Is this your company? Net profit, directors wages, business depreciation, one off expenses are added back to provide a true net profit figure. Distributions, wages and the like and post net profit actions aren't the lenders concern - they want to know in reality what is there to work from.

    The assumption is business owners will find the most effective way to distribute the funds for their relevant situation.
     
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  5. opal3259

    opal3259 Well-Known Member

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    Thanks guys - you rock!
    And yes - it's my company.

    I'm aware that look at the overall picture, but wasn't sure whether they 'weight' certain types of income over others. e.g. Does a salary get more weighting than dividends etc.

    Helpful to know this stuff when you're having those pre-lodging conversations with the accountant.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I don't think it makes any difference in terms of serviceability on whether you get a salary or dividend because this will be added back to the self employment income calculations.
     
  7. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    To help those who might not understand, assuming the following example:

    ABC PTY LTD has the following financials, with a sole director and shareholder - Joe Blogs:

    Revenue: $500,000
    General Costs: $400,000
    Depreciation: $25,000
    Salary paid to Joe Blogs: $50,000
    Net Profit: $25,000

    Assessible gross income in this situation for the most part will be $100,000. There will be some minor variations between lenders based on % of acceptable addbacks for depreciation and the like, but the concept is fairly simple.
     
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