Banks calculate self-employed income from your tax returns and ATO notices of assessment, usually covering the last one to two years. They start with net profit, not turnover, and then decide which year or average to use.
Many lenders average two years of income, but if your latest year is much lower they may use the lower figure. Some may add back expenses such as depreciation or genuine one-off costs, which can lift the income they assess.
That income is then tested against your debts and living costs at a buffered rate, so the number you think you earn and the number a lender accepts can be quite different. This article supports the main self-employed home loans Australia guide.
What documents do lenders use to assess your income?
Lenders may review:
- Personal tax returns and ATO notices of assessment.
- Business, company or trust tax returns.
- BAS.
- Profit and loss statements and balance sheets.
- Business and personal bank statements.
- An accountant’s letter.
- Business loan and credit card statements.
- ABN and GST records.
The ATO issues a notice of assessment once it has processed your tax return, which is why lenders treat it as confirmation of the income you declared (ATO, checked 3 October 2026). BAS shows turnover reported to the ATO between returns (ATO, checked 3 October 2026), but it doesn’t show profit on its own.
Lender pages give a sense of what’s typical. NAB lists personal and business tax returns for the past two years, BAS if returns aren’t available, profit and loss statements, balance sheets and bank statements (NAB, checked 3 October 2026). Westpac says sole traders generally provide two years of personal returns plus the latest notice of assessment, while partnerships, companies and trusts also provide business returns and financial statements (Westpac, checked 3 October 2026).
How many years of income do banks look at?
Most lenders look at one to two years. Pepper Money, for example, describes full-doc as one or two years of tax returns and notices of assessment, or one or two years of financial statements prepared by a registered tax agent or accountant (Pepper Money, checked 3 October 2026).
Some banks have shortcuts for simpler files. Westpac describes a Fast Track assessment for eligible self-employed borrowers with a 20% deposit who pay themselves a salary or distributions, using the last two years of personal notices of assessment instead of business financials (Westpac, checked 3 October 2026).
Do banks average your income or use the lower year?
It depends on the lender and on your income trend. NAB’s page says lenders may average income across a period, but if a recent period is significantly lower they may use the lower amount (NAB, checked 3 October 2026).
The examples below use illustrative figures only.
Two-year average
| Year | Income |
|---|---|
| Year 1 | $120,000 |
| Year 2 | $160,000 |
| Average | $140,000 |
This can work well when income is rising steadily and both years are acceptable.
Lower-year method
| Year | Income |
|---|---|
| Year 1 | $160,000 |
| Year 2 | $90,000 |
| Lender may use | $90,000 |
A sharp drop can significantly reduce borrowing power.
Latest-year method
| Year | Income |
|---|---|
| Year 1 | $95,000 |
| Year 2 | $155,000 |
| Possible usable figure | $155,000, if policy allows |
Some lenders may use the latest year if it is stronger and the increase can be explained. This is why lender choice matters.
Do banks use turnover or profit?
Profit. Self-employed borrowers often focus on turnover, but lenders want the income left after business costs.
If a business brings in $500,000 but spends $420,000 to run, the lender won’t treat you as earning $500,000. Depending on your structure, they’ll look at:
- Net profit.
- Director wages.
- Your share of partnership income.
- Trust distributions.
- Retained company profit, depending on policy.
- Accepted add-backs.
- Business liabilities.
What are add-backs, and which ones do banks accept?
Add-backs are expenses in your financials that a lender may add back to income because they don’t reduce your ongoing ability to repay in the same way as normal running costs.
| Add-back type | Why it may help | Watch-out |
|---|---|---|
| Depreciation | A non-cash accounting expense | Lender treatment varies |
| One-off expense | Not expected to recur | Needs evidence |
| Interest on some business debt | May already be counted elsewhere | Depends on lender method |
| Extra super contributions | Above compulsory levels | Needs accountant and lender review |
| Asset write-off | Can distort one year’s profit | Needs explanation |
| Trust distributions | May support income | Depends on control and history |
Westpac suggests including tax-deductible expenses such as business loan interest, rental property expenses, one-off expenses, depreciation, asset write-offs, company car deductions and family trust distributions in your application (Westpac, checked 3 October 2026).
Asset write-offs are a common example. The ATO’s instant asset write-off lets eligible small businesses with aggregated turnover under $10 million immediately deduct assets costing less than $20,000 each (ATO, page updated 28 August 2026). A big write-off year can make profit look lower than usual, so ask your accountant to document it clearly.
How much difference can add-backs make?
Here’s an illustrative example:
| Calculation | Without add-backs | With add-backs |
|---|---|---|
| Net profit | $120,000 | $120,000 |
| Depreciation add-back | $18,000 | |
| One-off expense add-back | $12,000 | |
| Adjusted income | $120,000 | $150,000 |
The extra $30,000 can change borrowing power, but only if the lender accepts the add-backs and the rest of the file works.
How does business structure change the assessment?
| Structure | What the lender focuses on |
|---|---|
| Sole trader | Business income flows through your personal return |
| Company director | Director salary, company profit, retained earnings and liabilities |
| Trust beneficiary | Distributions, control of the trust, the deed and history |
| Partnership | Your share of partnership income |
The lender needs to understand who earns the income, who controls the business and whether that income can continue.
How is serviceability tested once income is set?
After the lender settles on an income figure, it subtracts tax, living expenses and existing debts, then checks whether the new loan is affordable at a buffered rate. APRA’s guidance says lenders should assess new loans at least 3 percentage points above the loan rate (APRA APG 223, checked 3 October 2026).
That means every dollar of assessed income matters. You can test a rough range with the borrowing power tool, keeping in mind that each lender’s calculator differs.
What questions should a broker ask about your income?
A good broker should work through:
- Is income trending up or down?
- Which year will each lender use?
- Are the latest financials available?
- Are there legitimate add-backs?
- Are business debts being double-counted?
- Can company profits or distributions be used?
- Do you control the entity?
- Are there ATO debts or payment plans?
- Which lenders accept this income type, including low-doc options if returns aren’t ready?
What should you do 12 months before buying?
If you plan to buy within a year:
- Keep business statements clean and separate from personal spending.
- Lodge tax returns on time.
- Speak with your accountant early.
- Avoid new debt and reduce unused card limits.
- Manage any ATO debts.
- Keep records for one-off expenses.
- Track BAS and deposits properly.
General information only, not tax advice. Talk to your accountant or tax adviser before changing deductions, tax strategy or business structure, because lowering taxable income can also lower borrowing power. If you only have an ABN and limited history, read can I get a home loan with just an ABN.
Final word
Self-employed borrowing power depends on the income a lender accepts, not just what you feel the business earns. The right lender, properly documented add-backs and a clear income story can change the outcome.