Promoted Content

How two business owners paid off $40K ATO debt through refinancing

By Neil Carstairs
Refinancing options

Promoted by Mortgage Corp

Mortgage Corp refinanced a BrightonBrighton, SA Brighton, VIC Brighton, TAS Brighton, QLD business owner’s home loan to pay off his $40,000 tax debt  (despite the Big 4 banks telling him it wasn’t possible). We also managed to reduce his existing home loan rate for a total saving of approx. $15,000 a year.

Client Overview

Client: John and Cindy, clients of Mortgage Corp since 2013 (referred to us through a friend)

Marital status: married with 2 children

Income: $160k combined plus business profits

Occupation: self-employed in retail business

Suburb of home: Brighton, 3186 Victoria

Objective: tax debt help: find cash to pay $40,000 in ATO Tax debt owing in their business without having to resort to high interest rate debt

Results: paid off the ATO Tax debt through refinancing his home loan and managed to reduce his loan repayments. We also helped them set up a business trading facility that allowed them to improve their business cash flow, paying only home loan interest rates. Total saving approx. $15,000 a year.

Background

John was a small business owner with a retail shop in Brighton, Victoria.  He had been running his business successfully for a number of years, however he owed the ATO about $40,000 in relation to unpaid taxes.

John had already organised a payment plan with the ATO to pay down the tax debt however he was keen to clear off the debt as soon as possible and get his monthly cash flow back on track.

John also had an existing loan of just under $1 million on his property in Brighton.  This was a split facility with personal and business debts at residential lending rates.  He was looking at refinancing this loan in order to pay down the debt – however the big 4 banks were saying conflicting things including that he would have to refinance at a higher business rate instead to clear the tax debt. One of his friends (a happy Mortgage Corp client) suggested him to call Mortgage Corp.  

The Challenges

The Big 4 banks that John had gone to see had suggested to him that he would not be able to refinance his home loan in order to pay off his ATO tax debts as this was for a business purpose.  They recommended that he speak to a business banker and get a business loan.

We’ve noticed that many small business owners, in order to improve their cash flow,  often borrow at high rates under business loans such as an overdraft facility or even business credit cards (which can go to 18-21% per annum).  This was a situation John wanted to avoid.

Objectives

  • Refinance his existing residential home loan in order to pay off his tax debt
  • Free up cash flow to run his business (e.g. buy stock, pay salaries) going forward

The Solution

Whilst many of the Big 4 banks have policies which restrict refinancing of home loans for business purposes, we were able to refinance John’s home loan to pay off the ATO tax debt through our extensive knowledge of other lenders’ policies.

Not only that, we managed to go a step further and reduce his repayments on his home loan, even after consolidating his ATO tax debt, by getting a better deal on his entire loan.  We reduced his interest rate by 0.65% resulting in savings of about $250-$300 a month.

To assist with his future cash flow planning, we also split his loan up in three:

  • the home loan;
  • his ATO tax debt; and
  • set up a new business trading facility.

This new business trading facility would act as a line of credit against his home loan to allow him to buy stock, pay salaries, future ATO tax liabilities and other ongoing running costs. In other words, rather than borrowing at an overdraft rate or a business rate, going forward he would be able to borrow at a residential home loan rate and his only repayment would be the interest based on what he spent out of that line of credit. He was then able to top this up with ongoing business cash flow and reduce his repayments.

This was able to be achieved as he had sufficient equity in his home in Brighton – a suburb which had seen good capital growth in 2016 of 23%.

Having the new business trading facility meant John was able to buy more stock now using the extra funds, and then pay it down when he sold that stock.  Because he was buying stock in greater quantities, he was able to achieve better bulk/wholesale prices from suppliers thereby also increasing his profit margins in his retail business.

Results

  • Paid off outstanding ATO tax debt without having to resort to high interest rate business loans
  • Consolidated loans and refinanced to a lower rate, saving approx. $1,250 per month in interest
  • Reduced John’s monthly cashflow stress through setting up a business trading facility at home loan rates – meaning better profit margins

Note: for privacy reasons, names used in this case study are not real client names.

For real Mortgage Corp customer reviews, visit

www.mortgagecorp.com.au/testimonials/  or

www.facebook.com/pg/mortgagecorp/reviews/

What’s Next?

Keep reading Getting A Self Employed Loan Isn’t As Hard As You Think!

 

 

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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected]nt.com.au for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1204 (52) {
  ["id"]=>
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
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  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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