What is assessable income for a home loan?

Assessable income is the figure lenders use to calculate serviceability. For self-employed borrowers, it starts with taxable income and adds back non-cash deductions like depreciation, then may include other items at the lender's discretion.

Can I show the lender my bank statements to prove my real income?

Bank statements can supplement your application — lenders use them for AML verification and general financial health. But for serviceability, full doc lenders require tax returns. Bank statements alone don't replace them for standard products.

How does income from a trust affect my home loan?

Trust distributions to you as beneficiary are included as income — but lenders want to see 2 years of consistent distributions at a similar level. One-off large distributions are usually excluded or discounted.

Can a company car or vehicle allowance be included as income?

Fringe benefits (like a company car) are not included as income for home loan purposes. FBT grossed-up values appear on PAYG summaries but are not assessable. Vehicle allowances paid in cash are assessable if shown on your tax return.

What if I earn income in multiple business structures?

Lenders will assess income across all your entities — sole trader, company, trust — provided each is documented with separate tax returns and financial statements. The totals are aggregated but lenders may discount income from less-established entities.

My business had a loss last year — does that destroy my application?

A business loss in one year significantly complicates an application. Most lenders will use the average of 2 years — if the loss year brings the average below your income need, you may need a specialist lender or low doc product.

Is rental income from investment properties counted as income?

Yes — rental income appears on your tax return and is assessable. Lenders typically use 80% of gross rental income (to account for vacancies and expenses) and include it in your total income figure.

How does depreciation affect my home loan application specifically?

Depreciation is the most common and largest add-back item. If your tax return shows $40,000 of depreciation, most lenders will add this back to your taxable income, increasing your assessable income by $40,000. On a $700K loan this can translate to tens of thousands of dollars of additional borrowing capacity.

My accountant says my income is $200K but the bank says I can only borrow $500K — why?

The bank is not looking at gross revenue ($200K). They're looking at taxable income after all deductions. If aggressive tax minimisation brought taxable income to $90K, the bank calculates serviceability on $90K (plus any add-backs). Your accountant and your broker need to be on the same page before you apply.

What can I do to increase my assessable income without earning more?

The main levers: (1) reduce aggressive tax minimisation in the year you apply — pay slightly more tax to show higher income; (2) use a lender with generous add-back policy; (3) use a low doc product where your BAS-derived income may be higher than your tax return income; (4) include all legitimate income sources (rental, dividends, trust distributions) in your return.

Declared Income vs Actual Income: What Your Bank

Q: Why does my bank see a lower income than I actually earn?

Lenders use your taxable income from your tax return — not what actually flows through your accounts. Tax minimisation strategies like depreciation claims, prepaid expenses, and trust distributions reduce taxable income and therefore what lenders see.

Taxable

Starting point for lender assessment

+ Add-backs

Non-cash deductions restored

= Assessable

What lenders actually use

The single biggest frustration among self-employed home loan applicants is the gap between what they know they earn and what the bank says they earn. A tradie running a business turning over $600,000 may find a bank offering a loan size suited to a $100,000 salary. It feels insulting — and it's worth understanding why it happens.

It's not a mistake. It's a consequence of how tax minimisation interacts with mortgage assessment. This guide explains every layer of the gap and what you can do about it.

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Layer 1: Revenue vs Taxable Income

Your business might bring in $400,000 a year. But after legitimate business expenses — wages, rent, materials, vehicle costs, insurance, software — you might have $150,000 in net profit. Then depreciation claims, superannuation contributions, and prepaid expenses might bring that to $90,000 in taxable income.

The bank starts at $90,000. Not $400,000.

Layer 2: Taxable Income vs Assessable Income

From the $90,000 taxable income, lenders add back certain non-cash or non-recurring items:

Depreciation (building, plant, equipment): +$25,000
Motor vehicle depreciation: +$8,000
One-off large expense (uncommon but sometimes): +$10,000

So assessable income: $90,000 + $43,000 = $133,000

The bank lends based on $133,000 — not $400,000. This is the fundamental disconnect between business revenue and mortgage borrowing capacity.

A Worked Example: The $300K Business vs the $120K Assessment

Item	Amount
Business turnover	$300,000
Business expenses (60%)	−$180,000
Net profit	$120,000
Depreciation claimed	−$25,000
Super contributions (extra)	−$15,000
Prepaid insurance (June)	−$8,000
Taxable income	$72,000
Add: depreciation	+$25,000
Assessable income (lender)	$97,000

The business owner earns well. But the lender sees $97,000. On that income, a major bank might approve $550,000–$600,000. The business owner likely expected $800,000+.

Five Strategies to Close the Gap

1. Reduce Tax Minimisation in the Application Year

In the financial year before you apply, reduce or defer aggressive deduction strategies. Pay slightly more tax to show higher assessable income. The additional tax cost is usually much less than the value of the extra borrowing capacity.

2. Use a Lender with Generous Add-Back Policy

Not all lenders add back the same items. Some lenders are far more generous in their assessment, adding back interest on investment properties, additional super contributions, and motor vehicle costs. A broker who knows each lender's policy can identify the one that gives your application the best result.

3. Include All Legitimate Income Sources

Make sure your tax return includes all income sources: salary, dividends, trust distributions, rental income. If you've been taking minimal salary and leaving profits in the company, those retained earnings don't count — take a proper salary/dividend package and document it for 2 years.

4. Use a Low Doc Product

If your BAS statements show higher turnover than your tax return income suggests, a low doc lender uses BAS-derived income instead. This can significantly increase assessable income — but involves a slightly higher interest rate and usually requires a 20% deposit.

5. Talk to Your Broker 12 Months Early

The most effective strategy is timing. If your broker reviews your financials 12 months before application, they can advise your accountant on how to structure the next year's return to maximise assessable income. This is legal, ethical, and practical — it's simply understanding the interaction between tax planning and lending assessment.

Frequently Asked Questions

Lenders use taxable income from your tax return as their base — not what actually flows through your accounts. Tax minimisation strategies like depreciation claims, prepaid expenses, and trust distributions reduce taxable income and therefore what lenders see.

Bank statements supplement your application and are used for AML/identity verification. For serviceability, full doc lenders require tax returns. Bank statements alone don't replace tax returns for standard products — but they can support a low doc application or an accountant's letter.

Lenders include both salary and fully franked dividends in assessable income. If you take $60,000 salary and $80,000 in dividends, your assessable income is $140,000 — provided both appear on your personal tax return for 2 consecutive years.

Your accountant likely means gross revenue. The bank is looking at taxable income after deductions, which may be significantly lower. Your accountant and your broker need to be on the same page — ask your broker to walk through the exact income calculation before you apply.

Depreciation is the most common large add-back item. A $40,000 depreciation claim that reduced taxable income by $40,000 is typically added back by lenders — restoring $40,000 to your assessable income. On a typical multiplier, this could mean $200,000+ more in borrowing capacity.

Mortgagefy Broker Team

Mortgage Broker — Mortgagefy, Sydney

our broker team specialises in self-employed home loans and works with business owners and their accountants to maximise assessable income. Call 0432 634 648 for a free income review.

Declared Income vs Actual Income: What Your Bank Sees When You're Self-Employed