Key Takeaways
Most lenders assess self-employed income from your last two years of tax returns and notices of assessment (NOAs), not your turnover.
Your Australian Business Number (ABN) history matters, with two years the common benchmark and some lenders accepting 12 months.
Lenders often average two years of income, or use the lower year if your profit has dropped.
Some business expenses, such as depreciation, can be added back to boost your assessed income.
Running your own business gives you freedom, but it changes how a lender reads your income. There is no payslip to point to, so the lender builds its own picture from your tax paperwork. With self-employed home loans, that picture usually comes from two years of tax returns, and each lender reads them a little differently.
Those differences can be large enough to change how much you can borrow, which is why a self-employed mortgage broker will usually compare lender policies before an application goes in.
Why Lenders Assess Self-Employed Income Differently
Lenders need confidence your income will keep covering repayments for years, and business income can rise and fall with seasons, contracts and the wider economy.
So instead of payslips, lenders rely on documents the Australian Taxation Office (ATO) has already processed. These show what you actually earned after expenses, which is the figure they use to test whether you can afford repayments, known as serviceability.
Documents Lenders Need From Self-Employed Borrowers
On top of the identification and expense details in any home loan application checklist, a full documentation (full doc) loan usually needs the following, though the exact list varies by lender and business structure:
Personal tax returns for the last two financial years
Notices of assessment (NOAs) for the same two years
Business tax returns and financial statements, including profit and loss and balance sheet, if you trade through a company or trust
Recent business and personal bank statements
Details of business debts, such as equipment finance or overdrafts
Your NOA matters because it confirms the ATO has processed your return. If yours isn't in your myGov inbox, the ATO explains how to retrieve an older NOA through your account history. Requirements vary between lenders, so treat this list as a general guide.
How Long You Need an ABN
Most lenders want your Australian Business Number (ABN) active for 12 months to two years, and a few will go lower, depending on your work history:
Two Years or More
Many mainstream lenders want to see your ABN registered for at least two years, with two full years of tax returns to match.
12 Months
Some lenders may accept one year of trading and one year of tax returns. This usually applies where you worked in the same industry as an employee before going out on your own, such as a nurse moving into private practice or a tradie leaving an employer to contract.
Under 12 Months
A small number of lenders may consider less than a year in business with strong industry experience, though options narrow and conditions tighten.
How Lenders Calculate Self-Employed Income
Lenders turn your tax returns into one assessable income figure, and the method they choose is where self-employed applications differ most:
Averaging Two Years
Many lenders average your last two years of taxable income. If you earned $90,000 one year and $110,000 the next, the lender may assess you on $100,000.
Using the Latest Year
Where income is rising, some lenders may use the most recent year alone. This can make a real difference to your borrowing power after a strong year.
Taking the Lower Year
When profit falls, most lenders will use the lower figure or ask why it dropped. If the dip came from a one-off, such as time off, a large equipment purchase or a lost contract since replaced, a letter from your accountant and recent bank statements showing stronger trading may help.
Add-Backs That Can Lift Your Assessed Income
Whichever method a lender uses, the starting point is your taxable income, which often sits below the cash your business actually generates. Many lenders close part of that gap by adding certain non-cash or one-off costs back. Across Albury-Wodonga, we often see business owners with healthy cash flow but deliberately lean tax returns, which is where add-backs earn their keep. Common ones include:
Depreciation on equipment and vehicles
Interest on loans that will be paid out or refinanced
One-off expenses, such as a major repair
Superannuation contributions above the compulsory amount
Each add-back needs to show clearly in your financials, so ask your accountant to itemise them. Lenders vary in which add-backs they accept, so treat this list as a general guide.
How Two Lenders Can Assess the Same Income
The same tax returns can produce assessed incomes $25,000 apart, as this hypothetical example shows. Sam is a sole trader electrician in Wodonga who has held his ABN for three years. His taxable income was $85,000 two years ago and $105,000 last year, and he claimed $15,000 in depreciation on his van and tools in the latest year.
Lender A averages the two years, assessing Sam on $95,000. Lender B uses the latest year and adds back depreciation, assessing him on $120,000. That gap could mean a noticeably larger borrowing capacity with the second lender.
This example is a general guide only, as every lender applies its own policy.
How to Prepare Before You Apply
Since lenders work from lodged returns, start by asking your accountant when your next one will be lodged. Lodging a strong year before you apply gives lenders the higher figure to work with.
Keep business and personal spending in separate accounts, and pay down or close credit limits you no longer use. If this is your first purchase, government schemes can add their own conditions on top of lender policy, so a first home loan broker will usually check both before you apply.
Frequently Asked Questions (FAQs)
Do lenders use my turnover or my profit?
Lenders use your profit, not your turnover. They look at your taxable income on your tax return and NOA, then may add back certain items such as depreciation. A business with high turnover but thin margins may not support as large a loan as you expect.
Can I apply if my latest tax return isn't lodged yet?
Often, yes. Many lenders will work from your previous two years of returns while the latest one isn't due yet. Others may take an accountant's letter confirming your recent income for a short window. Under ATO rules, self-lodged returns are generally due by 31 October, while tax agent clients can have later due dates under the ATO's lodgment program, so your most recent year may not have an NOA yet when you apply.
Does my business structure change how income is assessed?
Yes. Sole traders are assessed on their personal tax returns. If you operate through a company or trust, lenders will also want the entity's financials and tax returns, along with your personal returns showing wages, dividends or distributions. Company structures add more layers, including how retained profits and director loans are treated. Trusts narrow the field further, since fewer lenders accept them, and a trust loan broker will usually check the trust deed against each lender's requirements early on.
Will business debts reduce my borrowing power?
Usually, yes. Lenders count repayments on business loans, equipment finance and overdrafts when assessing your capacity. For sole traders, these debts are generally treated as personal. Credit card and overdraft limits are often assessed on the full limit rather than the balance owing. Overdue tax debts count too, and the ATO may report a business's tax debt to credit reporting bureaus once at least $100,000 is more than 90 days overdue and the business isn't engaging with the ATO to manage it.
The Bottom Line
Before you make an offer, gather your last two tax returns, NOAs and a list of add-backs from your accountant, then compare how different lenders would assess them. You can then go house hunting knowing your likely assessable income instead of guessing at it.
If you're self-employed around Albury-Wodonga and weighing up your next purchase, Loan Street Finance can talk you through the lenders that suit how your business earns.
This article is general information only and does not take into account your objectives, financial situation or needs. You may wish to speak with a qualified professional, such as your accountant or a licensed broker, before acting on it.