For lending purposes, you are self-employed if your income comes from a business you own or control, whether as a sole trader, a partner in a partnership, or a director and shareholder of a company or trust. Contractors paid through their own ABN are usually treated as self-employed too.
Why Lenders Treat Self-Employed Borrowers Differently
A payslip shows a lender your income in seconds. Business income varies, and it is often reduced on paper by legitimate tax deductions. Lenders need to see that your income is stable and likely to continue, so they ask for more documents and assess them more carefully.
What Lenders Usually Ask For
Full doc (the most options and sharpest rates):
- Personal tax returns and Notices of Assessment, usually for the last two years
- Business financial statements and business tax returns
- An ABN held for around two years (some lenders accept one year)
Low doc or alt doc (when tax returns are not up to date):
- An accountant's declaration of income
- Business activity statements (BAS)
- Business bank statements
Add-Backs
Many lenders will add back certain non-cash or one-off expenses to your taxable income, such as depreciation, interest on loans being refinanced, and one-off costs. This can lift the income a lender uses by a meaningful amount, and lender policies on add-backs differ.
Tips for Self-Employed Borrowers
- Lodge your tax returns on time, since lenders rely on your most recent year
- Keep business and personal finances separate
- Talk to your accountant before a year-end that will be used for a loan application
- Use a broker who knows which lenders suit your income structure
See home loans for self-employed borrowers for more detail.