In short: Lenders assess self-employed income from your tax returns and notices of assessment, usually the last two years, then adjust the taxable figure with add-backs for depreciation, interest, one-off expenses and extra super. Most take the lower year or an average if income rose sharply. Some accept one year of returns, and alt-doc lenders will use BAS, bank statements or an accountant's letter instead. Your ABN and GST registration age are threshold tests before any of that starts.
Key takeaways
- Assessed income starts with taxable income from your returns and notices of assessment, then add-backs are applied.
- Two years of returns is standard; a growing number of lenders accept one year, sometimes with conditions.
- If income rose more than about 20% year on year, many lenders average the two years or cap the growth.
- ABN registration of two years is common policy; some lenders accept one year, and GST registration is often required above the threshold.
- Alt-doc loans use BAS, business bank statements or an accountant's declaration, at a higher rate and lower LVR.
A tradie in Wollert can earn far more than his salaried neighbour and still be told he can borrow less. That is not the lender being difficult; it is the lender reading a set of documents designed to minimise tax rather than to show income. Gorakh Timilsina spent years assessing exactly these files as a senior credit officer, and this post explains what a credit assessor actually does with your returns and how to present them well.
Where the assessor starts
The core documents are your personal and business tax returns and the matching ATO notices of assessment. If you trade through a company or trust, the lender wants the entity's returns and financial statements as well as your personal return. The ATO issues the notices, and a lender treats them as the verified figure.
From there, the assessor builds a servicing income in three steps: adjust for add-backs, choose which year (or average) to rely on, and apply the lender's policy on growth and consistency.
Step one: add-backs
Add-backs are expenses that reduced your taxable income but do not reduce the cash available to service a loan. Most lenders accept some or all of the following:
| Add-back | Why it counts | Usually accepted |
|---|---|---|
| Depreciation | Non-cash expense on plant, vehicles and equipment | Yes, in full |
| Interest on loans being refinanced | The new loan replaces the old debt | Yes, on the refinanced debt |
| One-off or non-recurring expenses | Legal costs, a write-off, a relocation | Case by case, with evidence |
| Superannuation above the compulsory rate | Voluntary contributions are discretionary | Many lenders, often in full |
| Salary paid to the applicant from their own company | It is the applicant's income, not a business cost | Yes |
| Instant asset write-offs | A large one-year deduction on a vehicle or equipment | Many lenders add it back in full |
Add-backs are where a good accountant's presentation and a good broker's knowledge of lender policy make a difference. The same $95,000 taxable income can become $115,000 of assessed income with $20,000 of depreciation and write-offs added back.
Step two: one year or two
Standard policy is two years of returns, with the assessor typically using the lower year or an average. The reasoning is that a single good year proves less than two consistent ones. But the market has shifted, and a number of lenders now accept one year of returns provided the ABN has been registered long enough and the income looks stable. Our post on the two-years-of-tax-returns myth covers the options in detail.
Step three: growth and consistency
If your income rose sharply between years, say from $80,000 to $130,000, lenders apply a growth policy. Common approaches:
- Average the two years: $105,000.
- Use the lower year plus 20%: $96,000.
- Use the most recent year if the growth can be explained and evidenced, for example a new contract.
If income fell, most lenders use the lower, most recent year. This is why timing an application around your best returns, or lodging the current year early, can change your borrowing power materially.
ABN age and GST registration
Before any income assessment, lenders check how long you have been trading. Typical thresholds:
| Policy point | Common lender position |
|---|---|
| ABN registered | Two years is standard; some lenders accept one year, a few accept less with strong evidence |
| GST registered | Required if turnover exceeds the GST threshold; many lenders want at least 12 months of registration |
| Same industry | Moving from PAYG employment to contracting in the same trade is treated favourably by some lenders |
| Business structure | Sole trader, partnership, company and trust are all acceptable; trusts and companies need extra documents |
Worked example: an electrician in Craigieburn
Ravi runs an electrical contracting business as a sole trader from Craigieburn. His figures:
| 2024–25 | 2025–26 | |
|---|---|---|
| Taxable income | $78,000 | $104,000 |
| Depreciation | $9,000 | $12,000 |
| Instant asset write-off (van) | Nil | $30,000 |
| Interest on business loan being refinanced | $2,500 | $2,200 |
| Adjusted income after add-backs | $89,500 | $148,200 |
The growth in adjusted income is over 60%, so a typical lender averages: about $118,850. A lender that caps growth at 20% over the prior year uses about $107,400. A lender that accepts the most recent year with evidence of ongoing contracts uses $148,200. Across those three policies, Ravi's borrowing power differs by well over $200,000. Test each figure in the borrowing power calculator.
BAS, bank statements and alt-doc
If your returns are not yet lodged, or they do not reflect your current trading, alt-doc (low-doc) loans use alternative evidence:
- BAS: usually the last four quarters, with the lender taking a percentage of turnover as income.
- Business bank statements: typically six to twelve months, again with a turnover-to-income assumption.
- Accountant's declaration: a signed statement of your income for the period.
Alt-doc loans carry higher rates, usually lower maximum LVRs (often 80% or below), and LMI or a risk fee above certain LVRs. They are a bridge, not a destination: many borrowers refinance to a full-doc loan once two clean years of returns exist. Our low-doc loans guide explains the trade-offs, and Moneysmart has independent guidance on comparing loans.
Presenting a strong self-employed file
- Lodge your returns on time and have the notices of assessment ready.
- Prepare a one-page summary of add-backs with references to the return.
- Include a business activity statement history and the ABN and GST registration records.
- Explain any unusual year in a short letter: a large write-off, a contract that ended, an illness.
- Keep business and personal accounts separate so statements are easy to read.
- Reduce credit card limits and clear small debts; these are assessed exactly as they are for PAYG applicants.
- Use the home loan documents checklist so nothing is missing at submission.
A broker also owes you a Best Interests Duty, which in practice means matching your income type to the lender whose policy reads it most generously. If you also want to buy your premises, the same income assessment underpins a commercial property loan, with different LVR and term rules.
Frequently asked questions
Do lenders use my gross turnover or my taxable income?
Full-doc lenders start from taxable income (or net profit before tax for a company) and add back approved items. A $400,000 turnover business with $70,000 of profit is assessed on the profit under a full-doc policy, not the turnover.
Can I use retained profits in my company?
Some lenders will include company profits not distributed to you if you own 100% of the company and the profit is available. Others only count what was paid to you as salary, dividends or trust distributions. Policy differs widely, and this is a common reason a company-owner's borrowing capacity varies so much between lenders.
My first year of trading was strong. Can I apply now?
Possibly. Lenders accepting one year of returns typically want the ABN registered for at least 12 months, the year lodged with a notice of assessment, and evidence that the income continues, such as invoices or BAS since year end. If your ABN is younger than that, an alt-doc product using BAS may be the path until your second return is lodged.
Talk to GNT Finance
Bring your last two returns and financials to Gorakh Timilsina and he will tell you how each of the major lender policies would read them before you apply anywhere. There is no cost to you for our home-loan service in most cases. Book a free consultation or call 0426 403 703.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.