In short: Lenders rarely count variable income in full. Overtime, bonuses and commission are usually shaded to somewhere between 50% and 100% of a one to two year average, depending on the industry and how consistent the payments are. Essential-services overtime is often accepted at 100%, while a first-year sales bonus may be excluded entirely until there is a second year of history.
This is the single most misunderstood area of home loan assessment. Two people take home the same amount each month, one gets approved for $700,000 and the other for $600,000, and the only difference is which portion of their pay the lender was willing to call reliable. Understanding shading before you apply is worth more than shopping for a rate.
Why lenders shade variable income at all
A credit assessor is forecasting, not recording. Base salary is contractual, so it is treated as certain. Overtime, bonus and commission are discretionary, so the question becomes: what proportion of this will still be paid if the employer has a quiet year?
The answer a lender lands on depends on three things.
- The industry. Overtime in nursing, policing, ambulance, rail and firefighting is structural, driven by rosters and staffing levels rather than by profit. Overtime in construction or manufacturing tracks the project pipeline. Lenders shade accordingly.
- The consistency. Two years of payslips showing overtime in every pay period is a different risk to one year with three big spikes.
- The documentation. If it can only be seen on a payslip, it is weaker than if it appears on two income statements and an employer letter.
Common shading treatments
Policy varies by lender and changes without notice, so we check the current position before you apply. The ranges below are what we commonly see.
| Income component | History commonly required | Percentage commonly counted | Document that proves it |
|---|---|---|---|
| Overtime, essential services (nursing, police, ambulance, fire, rail) | 3–6 months | Often 100% | Two payslips with year-to-date, plus employer letter |
| Overtime, other industries | 6–12 months, sometimes 2 years | Commonly 50%–80% | 12 months of payslips or two income statements |
| Shift penalties and rostered allowances | 3–6 months | Often 100% where they are part of the award roster | Payslips showing the allowance line, plus employment contract |
| Annual bonus | 2 years | Commonly 50%–80% of the two-year average | Two income statements or two years of payslips plus employer letter |
| Quarterly or monthly bonus | 12 months | Commonly 80% of the average | 12 months of payslips |
| Commission, part of a base plus commission structure | 12–24 months | Commonly 80%, sometimes 100% with 2 years | Payslips, employer letter confirming the scheme, tax returns |
| Commission only, no base | 24 months | Commonly the lower of the two years, or an average shaded to 80% | Two years of tax returns and income statements |
| Car allowance | 3–6 months | Often 100% if fully taxable, nil if a reimbursement of costs | Payslips and employment contract |
| Higher duties allowance | 6–12 months and ongoing | Commonly 100% while it continues, nil if it ends within 12 months | Employer letter confirming duration |
| First-year bonus with no prior year | Excluded by many lenders | 0%–50% | Employment contract stating the scheme |
Two practical notes. A taxable car allowance paid as income is usually assessable and worth including; a reimbursement against receipts is not income and will not be counted. And a bonus paid for the first time in a new role is very often excluded entirely, which is why a promotion sometimes lowers borrowing power in the short term.
Worked example: $22,000 of overtime, two treatments
Priya is a train controller earning a base salary of $78,000 with $22,000 of regular overtime, evidenced on twelve months of payslips and her last income statement.
- Lender A counts 100% of the overtime because her industry and history support it: $100,000 assessed.
- Lender B counts 50% of overtime as standard policy: $78,000 + $11,000 = $89,000 assessed.
The arithmetic on the 2026–27 resident tax scale plus the 2% Medicare levy:
| Lender A | Lender B | |
|---|---|---|
| Assessed gross income | $100,000 | $89,000 |
| Tax ($4,020 on the 15% band, plus 30% above $45,000) | $20,520 | $17,220 |
| Medicare levy at 2% | $2,000 | $1,780 |
| Net income | $77,480 | $70,000 |
| Net per month | $6,456.67 | $5,833.33 |
Her living expenses and liabilities are the same under both, so the entire $623.34 a month difference lands in the serviceability surplus.
At a rate of 6.00% p.a. assessed with the APRA buffer of 3 percentage points, the assessment rate is 9.00%. Over 30 years, $1 of monthly surplus supports roughly $124 of loan.
$623.34 × 124 = about $77,300 of borrowing capacity.
Priya's payslips did not change. Her budget did not change. A shading percentage moved her ceiling by more than $77,000. These figures are illustrative and every lender's calculator applies slightly different tax, expense and buffer assumptions. Use the borrowing power calculator to build your own baseline, then have the shading checked properly.
What an assessor checks before accepting variable income
- Year-to-date reconciliation. The assessor divides the year-to-date overtime by the pay periods elapsed and compares it with your claim. If the two do not agree, the lower figure is used.
- Two years, not one, for bonuses. Where two income statements are supplied, most lenders average them and shade the average. Where the second year is materially lower, some use the lower year outright.
- Whether the allowance is ongoing. Higher duties, remote-location and acting allowances get an extra look. An employer letter stating the allowance is ongoing and not time-limited is often the difference between 100% and nil.
How to make your variable income count for more
- Get an employer letter that names the components. Base, overtime, allowances and bonus, each with a figure and a statement of whether it is ongoing. This single document lifts more applications than any other.
- Download two income statements from myGov. Two years of gross totals from the ATO is the strongest possible proof of a variable income average.
- Apply after a strong year, not during a quiet quarter. Where a lender annualises year-to-date, timing genuinely changes the number.
- Do not round up. Declaring $25,000 of overtime when the payslips show $22,000 costs you the assessor's confidence in everything else on the form.
- Ask about the shading before the application goes anywhere. This is the entire point of using a broker on a variable-income file.
- Reduce the liabilities you can control so the shaded income goes further. The levers are set out in how to improve borrowing power, and BNPL in particular is covered in buy now pay later and your home loan.
If you are a nurse, midwife, paramedic or other healthcare worker, shift penalties and allowances are treated specifically, and there are LMI concessions worth knowing about. See nurses and healthcare worker home loans. If your variable income comes from casual shifts rather than salaried overtime, read casual and contract income home loans instead.
Where shading interacts with the rest of the file
Where a second income source is involved, the shading stacks: a second job and a bonus may be shaded on different rules by the same lender. See second job and multiple incomes. Where rental income is in the mix, that has its own shading table in rental income and how lenders shade it.
Frequently asked questions
Do banks count overtime for a home loan?
Most do, but rarely all of it. A common approach is 50% to 100% of a six to twelve month average, with the higher end reserved for essential-services roles where overtime is a structural part of the roster. You will need payslips showing the year-to-date overtime figure, and an employer letter confirming the overtime is regular and expected to continue.
How much bonus income will a lender use?
Typically 50% to 80% of a two-year average, and many lenders will not use a bonus at all until there are two years of history. A contractual bonus with a stated formula is treated more favourably than a discretionary one. Where the second year is much lower than the first, expect the lender to use the lower figure rather than the average.
Can I get a home loan on commission-only income?
Yes, though it usually needs two years of history. Lenders commonly take the lower of the two years or shade a two-year average to around 80%, and they will want tax returns and income statements rather than payslips alone. A base plus commission structure is assessed more generously than commission only, because the base is treated as certain.
Does a car allowance count as income?
If it is paid as a taxable allowance through your payroll and shows on your payslip and income statement, most lenders will count it, often at 100%. If it is a reimbursement of actual vehicle costs against receipts, it is not income and will not be counted. If the allowance exists because you must run a vehicle for work, some lenders offset a running cost against it.
Talk to GNT Finance
If a meaningful share of your pay is overtime, penalties, bonus or commission, the lender you apply to matters more than the rate you are quoted. Gorakh Timilsina assessed these files as a senior credit officer before founding GNT Finance, so we know which policy will read your payslips most fairly and how to document them so the shading lands where it should. There is no cost to you for our home-loan service in most cases. Book a free consultation or call 0426 403 703.
This page is general information only and not legal, tax or financial advice. Lender policy varies and changes without notice, so we confirm the current position before you apply.
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.