Self-employed · Guide How do lenders assess self-employed income?
Lenders don’t take your taxable income at face value. They rebuild it: start with net profit, add some costs back, then decide whether to average two years or use the latest one. Each lender has its own rules for each step, which is why the same tax returns can get different answers.
Key takeaways
- Most lenders start from net profit on your last two lodged tax returns, plus add-backs such as depreciation.
- Averaging two years and using the latest year can be tens of thousands of dollars apart. In the example below it’s $24,000 of assessed income.
- If your latest year is lower, most lenders use the lower year.
- Under two years self-employed, some lenders accept one year of returns, or a shorter ABN with a work history in the same field.
Averages two years
- 2024–25
- $120,000
- 2025–26
- $168,000
Uses the latest year
- 2024–25
- Checked
- 2025–26
- $168,000
Illustrative sole trader. Net profit plus add-backs: $110,000 + $10,000 depreciation in 2024–25, and $150,000 + $12,000 depreciation + $6,000 one-off cost in 2025–26. Lender rules differ and change. Not a quote or an offer.
Step 1: lenders start with your net profit
For a full doc loan, the starting point is the net profit on your lodged tax returns, checked against your ATO notices of assessment. Lenders want lodged returns because they’re a figure you’ve declared to the ATO, not a forecast.
If you’re a sole trader, that’s the business income on your personal return. If you trade through a company or trust, lenders look at the business return as well as your own, because the profit you control may not all reach your personal return. Company director income has its own page.
Turnover isn’t income. A lender only uses turnover on a low doc loan, or as a check that the business is still trading at the level your returns show.
Step 2: add-backs lift the profit back up
Some costs reduce your taxable profit without reducing the cash you have to repay a loan. Lenders add those back. The common ones:
- Depreciation. A paper cost spread over an asset’s life. Almost every lender adds it back.
- Interest on debts being paid out. If the new loan clears a business loan or a car loan, the interest you paid on it won’t continue.
- One-off costs. A legal bill, a fit-out or a bad debt that won’t recur, usually with your accountant’s letter to show it.
- Extra super contributions. For directors, super paid above the compulsory amount, with some lenders.
What isn’t an add-back: normal running costs, even large ones. A lender won’t add back your vehicle, phone or rent because you’d rather they did. Each lender has its own list, and the evidence it wants for each item.
Step 3: two years averaged, or the latest year?
This is where lenders differ most. In the example above, the business grew from $120,000 to $168,000 of assessable income.
| Lender approach | When it’s used | Assessed income |
|---|---|---|
| Average of two years | The most common approach | $144,000 |
| Latest year | Some lenders, when income is rising and the earlier year also shows a profit | $168,000 |
| Lower of the two | Most lenders, when the latest year has fallen | $120,000 |
Illustrative figures from the example above. If the years were the other way round, falling from $168,000 to $120,000, most lenders would use $120,000.
That $24,000 gap between averaging and the latest year flows straight into what you could borrow. It’s also why your choice of lender matters more than your choice of rate when you’re self-employed.
Why the same tax return gets different answers
Put the steps together and every lender builds a slightly different number from the same documents. One adds back the one-off cost and one doesn’t. One averages and one uses the latest year. One counts profit left in your company and one ignores it.
Then each lender runs that number through its own servicing calculator, with its own living expense benchmarks and buffer rate. So a no from your bank tells you about your bank’s policy. It doesn’t tell you about your income.
Every application can show on your credit file, so applying around to find out is the wrong way to learn this. I rebuild your income the way each lender would before anything is submitted.
Self-employed for less than two years?
Two years of lodged returns opens the most lenders. With less, it depends on what you can show:
- One full year lodged. Some lenders accept one year of tax returns, usually with a notice of assessment and recent BAS. See home loans with one year of tax returns.
- A new ABN in the same work. If you were an employee in the same trade or profession before, some lenders look at a shorter ABN history. See sole traders and tradies.
- No lodged return yet. A low doc loan may be possible, using BAS or an accountant’s declaration, at a higher rate and with a smaller maximum loan.
If waiting a few months for your next return would open more lenders and a better rate, I’ll tell you, and give you the date to aim for.
What a bank’s policy usually asks for
The wording changes from lender to lender, but most self-employed policies check the same five things:
- How long you’ve held your ABN, and GST registration if your turnover is $75,000 or more.
- Lodged returns and notices of assessment, usually for two years.
- Tax lodgements up to date, and any ATO debt under an arrangement.
- Recent BAS or business statements, to show trading hasn’t dropped.
- The industry you’re in, because some lenders treat some industries more cautiously.
Lenders for self-employed borrowers
There’s no single lender that suits every self-employed borrower. Banks, smaller lenders and specialist lenders each have strengths, and which one reads your figures best depends on your structure, your trend and your add-backs. I compare the lenders on my panel against your actual returns before recommending one.
Before you lodge: a note for business owners
The return that minimises your tax can also minimise what you could borrow. If you’re planning to buy in the next 18 months, tell your accountant before your next return is prepared. They’ll decide what’s right for your tax position. You’ll both know what a lender will see.
I don’t give tax advice, and I won’t ask your accountant to prepare your return differently. My job is to show you what the figures you have will do with each lender.
FAQ Questions clients ask
How do lenders calculate self-employed income?
Most lenders start with the net profit on your lodged tax returns, add back certain costs such as depreciation, then either average the last two years or use the latest year. A falling second year usually means they use the lower figure.
What are add-backs on a home loan application?
Add-backs are costs that reduce your taxable profit but don’t reduce the cash you have to repay a loan, so lenders add them back to your income. Depreciation is the most common. Interest on a debt being paid out and genuine one-off costs are others, usually with evidence.
Do lenders use my net profit or my turnover?
Net profit, adjusted for add-backs, on a full doc loan. Turnover matters on a low doc loan, where some lenders use BAS figures, and as a check that the business is still trading at the level your returns show.
Can I get a home loan if I’ve been self-employed for less than two years?
Possibly. Some lenders accept one year of lodged tax returns, and some will look at a shorter ABN history if you did the same work as an employee before. Fewer lenders fit, so the choice of lender matters more.
Will lenders use my latest year if my income went up?
Some will. Many average the last two years, which pulls a strong latest year back down. Some lenders use the latest year when it’s higher, often with conditions, such as the earlier year also showing a profit.
Does it matter that my accountant minimised my tax?
It can. The deductions that reduce your tax also reduce the profit a lender sees, which can lower what you could borrow. That’s not a reason to change how your accountant prepares your return. It’s a reason to plan ahead if you expect to buy, and to ask your accountant early.
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