With the financial year ending in 4 weeks, many clients – especially those who are self employed or who have complex income – are beginning to turn their attention to tax planning.
It’s a good instinct. When it comes to home loans and investment loans, your financials and tax returns are more than just a compliance obligation, they’re often the key income verification documents needed to secure finance from lenders efficiently and on competitive terms.
The structure and timing of your tax returns can make or break a mortgage application particularly with the major banks.
So at this time of year I always recommend being proactive and speaking with both your accountant and mortgage adviser before June 30.
Planning now gives you time to shape your financials in a way that supports your borrowing capacity and ensures you’re ready to move quickly if you have something in mind for later in the year and/ or when the right opportunity presents itself.
Lenders often rely on your most recent tax returns
Traditionally most mainstream lenders have wanted to see your two most recent years of tax returns and financial statements. However a number of lenders have now moved to a one year financials policy, and others have placed more reliance on the most recent year.
If your latest tax return shows a strong year of earnings, we’ll be in a better position to get higher borrowing capacity approved and benefit from faster turnaround.
This doesn’t only apply to self employed clients, it’s equally relevant for clients who may have significant non-base income, or where they have taken unpaid leave, or they have changed working hours, or where they have been between jobs. For these clients often their ‘Year to date’ income shown on payslips isn’t reflective of their entire earnings, and therefore additional documentation like tax returns becomes important.
If tax returns are outdated or incomplete, it can derail the loan process significantly. This is where being organised having a little foresight works in your favour.
Be proactive, don’t derail your next property or finance move
Too often we see clients spotting great property or investment opportunity, only to then be held back because their latest tax returns are still ‘months away’, or they have been prepared without taking all priorities or objectives into account.
The reality is most accountants are under heavy pressure from July through October and it’s not uncommon for clients to wait several months for returns to be finalised during this window.
So if you’re considering a property purchase, or construction, or refinance, within the next 6–12 months, don’t leave your tax planning or the preparation of your returns to the last minute.
I’d recommend a more proactive approach particularly now while there’s still time to make adjustments before the end of the financial year.
For example prepaying expenses to bring forward deductions, deferring revenue where appropriate, considering whether trust distributions or dividends are being treated in a way that maximise both tax efficiency and borrowing capacity – these are the types of items you should be discussing with your advisers (not after the year-end when your options may become more limited).
For me personally, there’s a new construction project I’m hoping to commence early next year… I’m starting to prepare for this now.
Getting organised doesn’t mean bringing forward tax outcomes
There’s a misconception that by preparing your tax early in the financial year you’re bringing forward tax payments unnecessarily.
This isn’t necessarily the case if you just ‘prepare’, but don’t yet lodge, your returns.
Certain lenders have policies where simply having finalised your returns is sufficient, and they can then be lodged at a later stage.
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To learn more or to discuss your personal finance strategy please schedule a call or Zoom with Dan or Ian.
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The Long Property Blog provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Nothing in this article or the Long Property Blog constitutes legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
