Can You Get A Home Loan With ATO Debt?
Can You Get A Home Loan With ATO Debt?
?Yes. There are some niche lenders that will capitalise your tax debt into your proposed home loan.
?Must have a suitable explanation for how this ATO debt occurred.
?Must reasonably explain why you are overdue with your repayments.
?Some niche lenders do not credit score, providing an opportunity to be considered for a loan.
?You must provide BAS, payslips, tax returns, accountants letter &/or bank statements.
?Best to work out a solution before the ATO takes action against you. Once a caveat is lodged on your home, this may exclude you from the few niche lenders available.
Can I add my ATO debt to my home loan?
?Yes. Some niche players will lend up to 80% (value of property + ATO debt). The loan must be less than 80% of the value of the property plus the ATO debt combined.
?Must provide a reasonable explanation as to why you're late with your payments.
?Must provide evidence that you can afford this new loan. There are also low doc options.
Does my Credit File show my ATO debt?
?As of July 2017 the ATO announced its plan to start recording tax defaults on the credit files of business owners. This is quite a significant shift for business owners. Now a lender can see if you owe tax debt and take this into consideration before lending you money. This will stay on your credit file for 5 years.
?To show on your credit file the debt needs to be more than $100,000 and overdue longer than 90 days without contacting the ATO to work it out.
?This will hurt your credit rating. There are still a couple of niche lenders that will not credit score in this space.
?It's a good idea to have an accountant help you manage communication with the taxation office.
?Sometimes refinancing your ATO debt into your mortgage is a good solution to get you back on track with one manageable monthly payment.
Must explain the reason for the tax debt
?A lender will view you as less trustworthy if you are late lodging your tax returns. Your ATO debt is a commitment that must be managed like any other repayment.
?Most lenders will be reasonable if your accountant lodged your tax return incorrectly.
?Capital Gains Tax from the sale of a property or asset is given more leeway as it is a one off situation rather than a systemic ongoing issue with your cash flow.
What if my tax returns aren't up to date?
?There a couple of low doc loan options.
?People with overdue ATO debt often have poorly kept tax returns. This reduces your options significantly for securing a mortgage.
?Self employed borrowers can provide a BAS, accountants letter, or bank statements rather than a tax return.
I'm a SME & need this capital for cash flow?
?It is not uncommon for a small to medium enterprise to manage their cash flow by delaying their ATO payment.
?An SME with a BAS or income tax bill less than $100,000 can enter into an ATO payment plan. You will need to lodge under your MyGov account. Ask your accountant to help you.
?Must pay 10% of the ATO debt with 7 days of starting the repayment plan.
?SME's have 2 years to pay the debt with interest, charged at the General Interest Charge rate of interest (GIC).
?The ATO will guide you as to your payments according to the size of your debt & business structure.
What if the ATO takes legal action?
?The ATO can be quite unforgiving for serial offenders who don't communicate a plan with them. You should speak to you accountant about updating the ATO and managing your payment plan. Ignore the ATO and the penalties can be severe.
?The court may lodge a court writ or judgement against your credit file making it harder to borrow in the future. Most main stream lenders will consider you a high risk client going forward. It's important to enter into a repayment deal with ATO to prevent this from happening.
?A court writ lasts 4 years on your credit file after it's fully paid.
?A judgement will last 5 years on your credit file.
?Talk to Mortgage Broker Revesby about refinancing this ATO debt into your home loan. Of course it's best to speak to your trusted accountant for advice first.
Can the ATO lodge a CAVEAT on my property?
?Yes. This will depend on the size of the tax debt and the amount of missed payments. Your communication with the ATO is key.
?A caveat can be placed on residential or commercial property.
?It is how the ATO ensures you do not sell the property without paying the debt.
?There are some niche lenders that will capitalise the ATO debt into your home loan to prevent a caveat on your property.
Can I get a mortgage if I made a payment arrangement with the ATO?
?Yes. This will prove to the lender that you are a good bet and intend to honour your repayments.
?Must provide a print out from the ATO portal showing your last 6 months worth of payments. It should show no missed payments.
Why won't the major banks give me a mortgage?
?Most major lenders strictly decline all borrowers with ATO debt.
?It shows financial distress. Adding a mortgage to somebody struggling to pay their ATO debt may be adding to a persons financial hardship. Banks really don't won't to see you fail; and sometimes they are the voice of reason in a 'hot' housing market.
?Statistics show that people with ATO debt are more likely to fall into other financial problems.
?Failing to lodge tax returns or repay the ATO indicates low motivation to repay debt. A bank will not want to deal with somebody who does not honour their repayments. If you can't be trusted with little, then you can't be trusted with much - no judgement. Clearly people sometimes fall on hard 'periods' in life and should not be included into this category.
?A lender may be concerned that the ATO could make a claim against the property when sold, leaving the bank with a loss.
Get an accountant!
?Your accountant will manage the communication between you and the ATO.
?Set up a repayment plan & help you structure your cash flows to meet the commitment.
?May advise you to capitalise this tax debt into your home loan to avoid ATO legal action.
I don't want to capitalise my ATO debt into my mortgage!
?This will limit your lender options significantly.
?You're servicing will be dramatically reduced as your ATO debt will be used as a liability.
Matthew Stack
Mortgage Broker Revesby
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