How do banks and lenders assess self-employed income for a home loan?

Lenders assess self-employed income from net income, the figure left after deductible business costs, rather than from turnover or gross sales. ASIC's Regulatory Guide 209 explains that under the National Credit Act a lender must make reasonable inquiries about a borrower's financial situation and take reasonable steps to verify it. For self-employed borrowers, ASIC lists recent income tax returns, Business Activity Statements (BAS), a statement from the borrower's accountant, financial statements for related business entities, business account statements and bank statements as sources, and says these will generally show the amount of net income and variable income patterns.

So the answer to "gross or net?" is net. The ATO treats the net income from carrying on a business as assessable income, and that is the figure a lender builds from. Banks do lend to self-employed people: Westpac's published guide, for example, says it assesses home loans for small business owners using the same process as for salary earners. The difference is the evidence used to prove the income.

Who counts as self-employed is its own test. Westpac's guide says lenders typically treat you as self-employed if you are a non-PAYE taxpayer, the primary decision-maker in the business and in direct control of the work you do, the hours you work and who you employ, among other tests. The label depends on how you are paid and how much control you have, not only on holding an ABN.

The figure a lender reads depends on the business structure, because each structure reports income to the ATO in a different place. The table below sets out where the ATO says income is reported for each of the four common structures, and the documents lenders such as Westpac commonly ask for.

Structure matters because a company director or trust beneficiary may earn less personally than the business makes, while a sole trader's whole business result lands in one return. How a lender treats company profit or trust income that has not been paid out is a question to put to a broker before applying. Which structure suits a business, or whether to change it, is a question for a registered tax agent, accountant or legal adviser.

An add-back is a deduction on a tax return that a lender agrees to add back to net income when assessing a self-employed borrower. FundUp states that certain lenders add back depreciation and other non-cash deductions. Westpac's guide for self-employed applicants, for example, suggests including tax-deductible expenses such as interest on a business loan, one-off expenses, depreciation and asset write-offs in a home loan application.

The instant asset write-off shows why add-backs exist. Under the ATO's rules, an eligible business can claim an immediate deduction for the business portion of an asset's cost in the year the asset is first used or installed ready for use. That lowers taxable income in the year of purchase, even if the same purchase does not recur. Westpac also notes that tax minimisation strategies can make taxable income appear lower, which may make a home loan harder to get.

Lenders do not all read the same number of years of self-employed income. Published requirements differ even among the major banks: ANZ says that for most applications it asks for one financial year of tax statements, CommBank asks sole traders for their two most recent personal tax returns plus business financial statements showing two consecutive years of profit and loss, and Westpac asks sole traders for the last two years of personal tax returns and the latest ATO notice of assessment. FundUp states that several lenders on its panel accept 1 year of trading history, and self-employed home loans covers that position.

When two years are used, how they are combined changes the result. The hypothetical example below uses round numbers to show how the same two tax returns can produce different income figures.

In this example the gap between the average and the latest year is $9,000 of assessable income. A fall in income tends to draw questions: Westpac's guide encourages self-employed applicants to show consistent income, business growth and increased earnings over time. ASIC lists a statement from the borrower's accountant setting out actual or likely income levels among the sources a lender can use. Which reading applies is lender policy, so it is a question for a broker before choosing where to apply.

Once a bank has settled on a self-employed income figure, APRA's buffer applies as it does for any new borrower; Westpac, for example, says it uses the same process as for salary earners. These are the main steps between assessable income and a borrowing limit.

1. 1Assessable income. The income figure from your returns and financial statements, after any add-backs the lender accepts.
2. 2Living expenses. Lenders compare declared expenses with a benchmark. ASIC says the most commonly used is the Household Expenditure Measure (HEM), and notes that benchmarks do not provide information about the individual borrower, so declared spending still matters.
3. 3Existing debts. Credit reports and other lenders' statements confirm the total debt outstanding and the amount and frequency of repayments.
4. 4Serviceability buffer. Under APRA's prudential standard, banks must assess new borrowers' ability to meet repayments at an interest rate at least 3.0 percentage points above the loan product rate. APRA confirmed the buffer remains at 3 percentage points in its 28 May 2026 update.
5. 5Debt-to-income limits. From 1 February 2026, APRA's limits allow banks to lend up to 20 per cent of new owner-occupied and investment loans at a debt-to-income ratio of six times income or more. The limit excludes owner-occupier bridging loans and loans to buy or build new dwellings.

For a first estimate, the FundUp calculators include a borrowing power calculator for self-employed income. A calculator estimate is a starting point, not a lender's assessment.

Beyond the income figure, a lender verifying a self-employed borrower's financial situation looks at records that show how the business and the household run. This checklist covers the items worth having in order before an application.

• ABN and GST registration. ABN Lookup is free and shows whether an ABN is active or cancelled, the business type and GST status, so the public record is easy to check first.
• Trading history. Requirements differ by lender and product. ANZ's streamlined policy for company directors, for example, asks for a regular company wage for at least 6 months and an ABN or ACN registered for 18 months.
• Tax lodgement and ATO debt. The ATO expects tax to be lodged and paid in full and on time. A payment plan breaks a tax debt into instalments, but the debt keeps accruing the general interest charge, which compounds daily. A tax debt is a liability to disclose.
• Bank statements. ASIC's guidance lists gambling accounts among the outgoings bank statements can confirm, and describes a lender checking statements for inconsistencies or omissions such as undisclosed liabilities.
• Credit report. According to the OAIC, you can request a free copy of your credit report to check what has been recorded before a lender sees it.

Full doc assessment of self-employed income depends on lodged tax returns, so it can lag a business that has grown since its last return or has not yet lodged the years a lender asks for. Some lenders offer low doc home loans to self-employed borrowers who may not meet all the documentation requirements of a regular application. ASIC's list of self-employed income sources already includes BAS, an accountant's statement and business account statements. The low doc vs full doc loans guide compares the two routes, and self-employed home loans explains the documents FundUp works with.

Preparing for a self-employed home loan is mostly about making your income easy to verify.

1. 1Lodge any outstanding tax returns and keep each notice of assessment with the return it relates to.
2. 2Talk to your registered tax agent or accountant about how deductions and write-offs appear in your financials. Tax planning is theirs to advise on, not a broker's.
3. 3Deal with any ATO debt early, either by paying it or by asking the ATO about a payment plan, and disclose it in the application.
4. 4Gather the documents for your structure: tax returns, financial statements, BAS, and business and personal bank statements.
5. 5Check your credit report and your ABN details.
6. 6Get an estimate on the calculators, then talk to a broker about pre-approval.

FundUp is a Cairns-based mortgage broker that works with borrowers Australia-wide and has access to over 40 lenders. Its service costs the borrower nothing because the lender pays the broker a commission when the loan settles. Borrowers in Far North Queensland can start with the home loan advisors on the Cairns northern beaches; anyone can book a free consult through self-employed home loans or read more about home loans.