Your business had a strong year. Profit is up, the work keeps coming, and you’re ready to buy. Then the bank looks at your tax return and offers to lend you far less than a salaried employee earning half what you do.
Frustrating, and completely predictable once you see how lenders read your paperwork.
The good news is that most of what limits self-employed borrowers can be fixed. The catch is that fixing it takes about two years, which means the time to think about it is well before you start looking at houses.
Can You Get a Home Loan When You’re Self-Employed?
Yes. Self-employed borrowers get approved every day, at normal interest rates and with the same products available to everyone else. Lenders simply assess you differently, using the taxable income shown on your returns rather than payslips. Most want two years of returns, and the figure they lend against is often lower than what your business actually earns.
That last sentence is where the trouble starts.
The Deduction Paradox
Here’s the problem nobody warns business owners about.
A good accountant reduces your taxable income. Vehicle costs, home office, depreciation, equipment, super contributions. Every legitimate deduction cuts your tax bill, and that’s the job.
But lenders assess you on that same reduced figure.
Take someone whose business turns over $250,000 with a real economic profit around $140,000. Claim hard and taxable income might land at $95,000. The tax saving is real. So is the effect on borrowing capacity, because the lender sees $95,000, not $140,000.
Two competing goals, pulling in opposite directions. Minimise tax and you shrink your borrowing power. Maximise borrowing power and you pay more tax.
Neither answer is right on its own. The right answer depends on whether you plan to borrow in the next couple of years, and that’s a conversation to have with someone who understands both sides.
What Are Add-Backs?
Lenders know that taxable income understates what a business owner really earns. So they add certain items back.
Commonly accepted add-backs include:
- Depreciation, since it’s an accounting entry rather than cash leaving the business
- One-off or non-recurring expenses, where you can show they won’t repeat
- Additional superannuation beyond the compulsory amount
- Interest on debt being refinanced as part of the same application
- Net profit retained in a company, where you control the company
Add-backs can lift assessable income substantially. In the example above, depreciation and extra super alone might carry that $95,000 well up towards the real figure.
Two things matter here. Policies vary considerably between lenders, so one bank may accept an add-back another refuses. And add-backs need supporting evidence, usually from your financial statements rather than the tax return alone. Presenting them properly is a large part of what makes an application succeed.
Why Your Structure Changes the Answer
Lenders read sole traders, companies and trusts differently. Most articles skip this, and it matters enormously.
Sole trader. Simplest to assess. Net business profit from your return becomes your income, plus add-backs. What you see is what they lend against.
Company. More moving parts. Lenders look at director wages, dividends, and often the profit retained inside the company where you own and control it. Pay yourself a modest wage and leave profit in the business for tax reasons, and a lender working only from your personal return sees a small income. Structured and evidenced properly, the retained profit can usually count.
Trust. Assessment follows the distributions. Where profit gets split across family members for tax reasons, only your share typically counts towards your borrowing capacity. A strategy that saves the family group tax can quietly halve what you personally can borrow.
Our guide to sole trader, company and trust structures covers the tax side of that decision. The lending side deserves equal weight when a property purchase is coming.
What Lenders Ask For
Expect to provide:
- Two years of personal tax returns plus notices of assessment
- Two years of business financial statements, profit and loss and balance sheet
- Recent BAS lodgements, often the last four quarters
- Business and personal bank statements, usually three to six months
- An ABN and GST registration showing continuous trading
Some lenders accept a single year of returns where the business has traded longer and the figures are strong. A smaller group offer alternative documentation loans using BAS and bank statements instead of full returns, though these usually carry a higher rate. Those options exist, but they suit specific situations rather than being a general shortcut.
One practical point worth acting on: outstanding tax returns stop applications dead. Lenders want current lodgements, and being two years behind is one of the most common reasons a self-employed application fails before it starts.
Timing: Start Two Years Out
The single most useful thing in this article.
Lenders look back two years. So decisions you make this financial year shape what you can borrow the year after next.
Where a purchase sits somewhere on the horizon, worth discussing with your accountant:
- Whether aggressive minimisation still makes sense, or whether showing stronger income for a year or two serves you better
- Whether a restructure would help or hurt, since changing entities can reset your trading history in a lender’s eyes
- Whether your wage from your own company reflects what you actually take
- Whether trust distributions should shift while you’re building borrowing capacity
None of this means paying unnecessary tax. It means choosing deliberately rather than discovering the trade-off at application time.
Frequently Asked Questions
How many years of tax returns do I need for a self-employed home loan?
Most lenders ask for two years of personal tax returns with notices of assessment, plus business financial statements. Some accept one year where the business has traded longer and the numbers are consistent. Requirements vary between lenders, which is where comparing policies helps.
Why is my borrowing capacity lower than my actual income?
Lenders assess the taxable income on your return, which sits below your real earnings once deductions come off. Add-backs such as depreciation and extra superannuation can recover part of the gap, but the starting point is always the figure the ATO sees.
Do I pay more interest as a self-employed borrower?
Not usually. Meet a mainstream lender’s requirements and you access the same rates as anyone else. Higher rates generally apply only to alternative documentation loans, where the lender accepts BAS and bank statements instead of full tax returns.
Can I get a home loan with only one year of self-employment?
Sometimes. A handful of lenders consider one year of returns where you worked in the same field beforehand and the business is performing well. Options narrow considerably, so getting the application in front of the right lender matters more than usual.
Will claiming fewer deductions help me borrow more?
It can, though it means paying more tax to do it. The sensible approach weighs the extra tax against the extra borrowing capacity, and considers the timing, since lenders look back two years. That calculation needs your actual numbers rather than a rule of thumb.
Does using a broker cost me anything?
Generally no. Lenders pay brokers a commission when a loan settles, and those commissions get disclosed to you. Under ASIC’s best interests duty, in force since 2021, brokers must recommend what suits you rather than what pays them most.
One Team, Both Sides of the Ledger
Most brokers cannot read your financial statements properly. Most accountants never see the loan application. That gap costs self-employed borrowers real money, and it’s the gap SMG was built to close.
SMG Group is a CPA Practice based at Rooty Hill, working with clients across Blacktown, Mount Druitt, Penrith, Minchinbury and Greater Western Sydney. We prepare and review your financials, present your income in the strongest defensible way, and work with our broking partner Finance For Tomorrow to reach a panel of more than 60 lenders. Around 74% of new residential home loans in Australia now settle through brokers, according to the MFAA, and self-employed borrowers gain more from that comparison than anyone.
Planning to buy in the next couple of years? Talk to us now, not when you find the property. Contact our team or call 02 9832 2078, and read more about our mortgage broking services.
This article is general information only. It does not take your objectives, financial situation or needs into account, and it is not credit advice or personal tax advice. Lender policies differ and change. Speak with our team about your circumstances before applying.