We recently invited Colin O’Loughlin, Director and Mortgage Broker of Arch Brokerage to the webinar. Here’s what he said –

“Cashbacks have been rife within the finance industry for the best part of the last three or four years. There’s been a lot of lenders that have access to cashback options. Anywhere between $2,000 and $5,000, which is quite a bit of money moving between lenders.

We are seeing them go away from the market. So, we’ve seen pretty much all your Big 4 lenders pull out of that, minus ANZ. It’s less than a handful of lenders left; whereas previously, we would’ve said there’s a good 10 or 15 that are offering cashbacks. So, we’re seeing a lot of the lenders pull out of the market.

It’s not always a driving factor, but if you can get a better rate and you can get these cashbacks while they’re still around, it can still be a great opportunity to take advantage of the money that’s available from the lenders right now.”

On a recent webinar, Rizal Ramzan, Partner of Inspire, talked about how to avoid a Division 7A loan disaster. Here’s what he said:

“There are situations where people want to keep their taxable income low and save taxes to maintain a lower income.

So, what they do is they pull a small amount of salary or a small dividend in their personal name. However, their living expenses exceed what they have actually withdrawn.

That is where the problem arises. They still have to pay for their home loan, so they pull money out of the business. That additional top-up, that difference, can become a Division 7A loan if not treated properly, or if there isn’t a plan for it.

So, the fundamental issue is you need to work backward first. Determine what you need in terms of your living expenses and lifestyle. Whatever that amount is, that’s the amount you want to take out personally.

The reason we emphasize this is that you won’t be able to pay it back. It’s not an investment; it’s an amount you cannot return. Another analogy to consider is that if you don’t take it out personally and get taxed on it, borrowing for it is like living on a credit card, in a sense.”

Division 7A exists because if we leave money in companies to be taxed, and then we take it out without ourselves getting taxed on it, that’s generally how it happens.

So, why would you need money out of a company?

Let’s consider a scenario where all the business income goes into the company, and we have $0 taxable income at the individual level. For instance, you need to cover living expenses for the person. A mortgage needs to be paid or rent. You might buy property, make other investments, or cover any other lifestyle expenses.

So the question is, how are these expenses going to be paid?

And that’s where Division 7A aims to prevent people from simply withdrawing cash from companies at a 25% tax rate and spending it personally when they would otherwise be taxed at 47%.

If you secure it, the ATO allows you to extend the repayment period from seven years to 25 years. What the ATO is trying to achieve is that if you borrow money from a company, as long as it’s on commercial terms, they’ll permit it.  So if you’re securing it over 25 years, that’s like a mortgage on a home loan, right? Secured and protected for 25 to 30 years. We can stretch it out. If it’s unsecured for seven years, you have to pay it off much more quickly.

Now, why is this a longer-term solution? For assets like properties, you might hold onto them for a long time, especially if it’s your personal home, and you don’t want to be forced to pay off part of your home loan within seven years. You want to align that with all the other loans, typically over 30 years.

So, what you do is align that loan, secure it, and then it becomes a solution. It doesn’t eliminate it, but it reduces the minimum repayment each year significantly. Now, whenever you receive income from salary or dividends from your business, you can use that to pay your home loan, let’s say to CBA. That’s the monthly payment to CBA. Another payment goes to your own bucket company, but over 25 years, in smaller increments.

The R&D Tax Incentive program is an initiative of the Australian government to encourage businesses to invest in research and development to generate new knowledge to benefit companies and increase productivity across the Australian Economy that may not otherwise have been conducted.

To achieve this, the Australia government offers a tax offset to companies doing R&D. Download our partners, Innercode’s ebook below to learn more about R&D tax in the tech and software space.

We invited Colin O’Loughlin, Director and Mortgage Broker of Arch Brokerage to the webinar back in August 2023. Here’s what he said –

“I think, overall, it looks relatively positive as to what the economists are saying from the Big 4 lenders. This is all based around the cash rate. So, obviously it’s not the interest rate that you are getting because there’s a buffer that’s built into that. That’s how the bank makes its money.

But the cash rate just gives us a bit of an idea of what the RBA is doing. So right now, (17 August 2023) the cash rate is 4.10%. If you look across the board, the only one that is predicting that there’s going to be an increase in the next two years is NAB. So they’re saying that they’re predicting there’s going to be a 0.25% increase in November.

It’s probably worth mentioning that this can be fluid. The bank does update its outlook or its projections on a sort of semi-regular basis. But I think it comes for good reading. So if we look at the likes of Westpac, they’re saying that they predict that the cash rate is going to drop 1.5% from today (17 August 2023) to December 2025. That would be amazing. I think that’s going to be good news for mortgage owners.”

We recently invited Colin O’Loughlin, Director and Mortgage Broker of Arch Brokerage to the webinar. Here’s what he said –

“What we’re sometimes seeing, and not great from my point of view as a mortgage broker, but sometimes we can start an application for a client and then they can turn around and say, ”Hey, we lodged the discharge form”.  We tell them that they’re going to be leaving, and then they’ll try and trump potentially whatever’s made available to you.

So, one sort of thing that we are using is we are trying to leverage against your existing lender and say, “Hey, this is what’s available out there in the market. Can you come and meet this?”.

I also know that lenders are getting better at providing their best pricing upfront and stopping that toing and froing. Obviously, from a mortgage broker’s point of view, we don’t want to start doing the work whenever they’re going to come along and then try and beat the business. 

We will try and put you in the best position possible to get the best rate. Whether that’s staying with the existing bank or leaving, it just comes down to the research that’s conducted at that starting point that’s going to yield you your best interest rate available.”

We recently invited Colin O’Loughlin, Director and Mortgage Broker of Arch Brokerage to the webinar. Here’s what he said –

Traditionally, whenever you’re applying for a loan, the bank will add around a 3% buffer on top of what the normal interest rate is. As interest rates go up, the bank will try to fund that loan based on it being a high 8% interest rate.

A lot of these lenders bring in a 1% buffer, or sometimes a no-per cent buffer in order to allow you to look at your borrowing capacity, does it give you the ability to do that and move between lenders without actually being held in the one lender all the time?

If you want to see if there’s something that you’re eligible for on that front, or maybe you’ve looked into this process and you feel like, “You know what? I do feel like I’ve been a bit of a mortgage prisoner. I’ve got no options.” Feel free to reach out. We’ll be more than happy to provide you with some options in that space.

If your business primarily sells products or is not considered a “professional firm,” you may be affected by the new guidelines published by the ATO regarding profit allocation arrangements. These guidelines will take effect on July 1, 2022, and will have a two-year transition period.

Professional firms include but are not limited to accounting, law, medical, engineering, architecture, management consulting, financial services & stockbrokers, businesses in building & construction (e.g. builders, plumbers, electricians), real estate agents and services such as waste removal and funerals.

Inspire accountants will provide detailed guidance to their professional firm clients on the new guidelines during the Annual General Meeting or during tax planning sessions.

We suggest that you speak to your accountant in the next couple of months to see how the new guidelines could affect your current arrangements.

Reference: shorturl.at/TUY01

To claim rent expenses under the company or trust, you will need to have a genuine market rate rental agreement between the owner of the property and your business. If you do not own your property, you will need a contract with your landlord. Alternatively, you may claim occupancy expenses (subject to eligibility) in your personal tax return against your salary. 

Examples of occupancy expenses are mortgage interest or rent, council rates, land taxes and house insurance premiums. Homeowners will need to consider capital gains implications should they sell their property in the future.