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Would it ever make sense to not claim valid deductions to boost borrowing power?

Discussion in 'Property Finance' started by jaybean, 14th Jul, 2015.

  1. jaybean

    jaybean Well-Known Member

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    Maybe I've got this all wrong, let me know if I have.

    Say you had 20k worth of deductions at the top tax bracket, which leaves you about 10k ahead. This boost in income has a multiplier effect, again to simplify, of say 5x (?). So that's 50k extra you could have borrowed. If you're at the limit, this 50k could mean the difference between that one last purchase or not.

    So you've sacrificed 10k to get 50k, or rather, 300k (total amount you'd like to borrow). Would it make sense then to treat this 10k almost like mortgage insurance?

    Happy to be corrected here. Would like to see what you guys think about this.

    I'm in a position where I was expecting a big boost in income to help boost my borrowing power, but I had not anticipated how many deductions I would have. I guess all these recent purchases, depreciation reports etc have just snowballed. I have massively reduced my tax (ordinarily an enviable position to be in), at the expense of being able to draw on more equity. I'm now left wondering whether I should have left out some of those deductions...is this a stupid way of thinking? Have I omitted something in my thought process here? I mean wanting to be taxed more...it's the ultimate first world problem...
     
    Last edited: 14th Jul, 2015
    Redom likes this.
  2. Redom

    Redom Mortgage Broker Business Member

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    Partly depends on the borrower.

    Can make sense for self employed where financials will be used to borrow money. Although some of the deductions you've mentioned are 'add backs'. That is, they reduce your tax and profit (paper expenses). But they get 'added' back to your income.

    A good example are some cash businesses, who need to prepare their financials if they plan on borrowing. They pay more tax as a result but can borrow more money.

    For PAYG, they will use your salary as income, not the tax you pay. Plenty of salaried employees earning 100k a year don't pay tax (depreciation etc), but they use that 100k income to borrow. Many deductions you claim won't really additionally impact your borrowing calculation (e.g. travel expenses, etc) - they just fall under you normal living expenses thats used to work out your borrowing power.

    Cheers,
    Redom
     
  3. Hodge

    Hodge Well-Known Member

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    I've done this for last financial year. Mainly the smaller deductions. It's the only way I'll beat the new borrowing regulations.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you don't claim expenses you might be able to go back and amend tax returns too.

    It could work for self employed but not employee.
     
  5. jaybean

    jaybean Well-Known Member

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    I'm a sole trader, not a PAYG:( They use after tax income right? I think I may have shot myself in the foot!!!
     
  6. jaybean

    jaybean Well-Known Member

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    I thought about this, but doesn't it border on fraud?
     
  7. Hodge

    Hodge Well-Known Member

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    Sorry I should add I'm self employed. Like terry said no point for an employee
     
  8. jaybean

    jaybean Well-Known Member

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    My last year's income was very high though. Do banks generally take the lesser of the two, or an average? Or does it vary between banks?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Depends on the intention.
     
  10. jaybean

    jaybean Well-Known Member

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    What would be some legitimate reasons other than "I forgot about them"?
     
  11. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Employees don't have a chance with this, but for self employed applicants sure.

    It sometimes can be quite the fight between brokers and accountants, where the broker needs the highest income possible, whilst the accountant is trying to reduce it by as much as possible.

    Sometimes a 'great' accountant can make it impossible for you to borrow.
     
    D.T. likes this.
  12. tobe

    tobe Well-Known Member

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    See it all the time, self employed borrowers 'win' at tax, and then 'lose' at borrowing. Most dont seem that concerned. The great Aussie dream is getting gubment money, even if it costs you more.