Serviceability and Directors Franked Dividend

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.

 

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

 

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.

 

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.

 

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.

 

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.

 

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.