Proof of income for self employed borrowers
Some self employed borrowers aren’t sure if they should apply for a low doc loan or not.
Some methods of assessing your business income are entirely full doc or low doc so read on to find out which option might work best for you.
What alternative verification is accepted?
One year’s tax returns
Some of our lenders do not need two years tax returns or financial statements.
This is great news for people who have a new business with a low profit in the first year or for businesses that had a one-off bad year.
You will need to provide:
- Last years’ financial statements (Profit & loss and balance sheet).
- Last years’ business tax returns.
- Last years’ personal tax returns.
- Last years’ notices of assessment.
Old tax returns
Did you lodge the last tax return some time ago? Out of date tax returns can be accepted by some of our lenders.
Lenders might request your Business Activity Statements (BAS) in case if the tax returns are not available.
As a general rule, you must meet the following criteria:
- Your old tax returns must show a high income.
- You must show two years of tax returns & financial statements.
- Your tax return must be no more than two years old (see below).
- You can borrow up to 90% of the property value.
Not sure which lender can accept old tax returns for your business?
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will see if we can use your old tax returns.
How old can my tax returns be?
Your latest tax return must be from the financial year that ended no more than two years ago.
For example, the 2019/2020 financial year ended on 30/6/2020. So we can accept your 2018/2019 and 2019/2020 tax returns as evidence of your income until 1/7/2021!
Recent tax returns can be beneficial for you, especially if you can’t provide BAS. We know lenders who don’t require BAS if you have recent tax returns.
What if my old tax returns don’t show a good income?
We can sometimes use an old tax return combined with 12 months BAS to prove your income.
The lender will use your old tax return to work out the profit margin for your business.
They then use the turnover from your BAS and apply this profit margin to work out your current profit. With this method, you can borrow up to 90% of the property value.
Who can use this method?
This is ideal for someone who has a good income, however, has not completed their most recent tax return.
How much can I borrow?
This is a full doc loan, otherwise known as a normal loan. You can borrow up to 90% of the property value and you can obtain discounted interest rates with one of our lenders.
If you provide BAS in case the tax return is not available, it will be a low doc loan.
Self employed contractors
As a self-employed contractor, you:
- do not provide materials, only your labour.
- do not have employees.
- work for one main company only.
- can provide invoices and bank statements to verify your income.
- are borrowing no more than 90% of the property value.
In this case, lenders might be able to accept your income with just your invoices and bank statements as evidence of your income. While some lenders might ask for more documents to validate your income.
In case you are also a PAYG employee, you might need to provide an accountant letter, BAS, or a tax return.
Please refer to our contractor loan page for more information.
Financials, without tax returns
Some of our lenders will accept two years financial statements without tax returns for alt doc home loans. Of course, there are some conditions:
- Two years financial statements are required.
- Borrow up to 80% of the property value.
- This is a full doc loan, not a low doc loan, so the rate is competitive.
- The financial statements must be accountant prepared and not a draft.
- You do not need to provide tax returns or a notice of assessment.
This is a great option for someone who is delaying the lodgement of their tax return. Many business owners complete their financials soon after the end of the financial year but refrain from lodging their tax return so that they don’t need to pay a large tax bill right away.
Self-Employed Salary As Income
If you’re self-employed and you get a regular salary from your business, you can now use it as income to apply for a home loan.
Suppose you are paying yourself salary/wages from your business. In that case, we can provide use six months’ payslips and a letter from your accountant stating that the business can cover its debts and is trading profitably.
This policy is acceptable to some lenders instead of providing tax returns and financials.
*Under a new policy from one of our lenders, you may qualify for a loan based on the following:
- Requires 2 payslips OR 3 months’ salary credits + Accountant’s Letter as a substitute.
- All self-salaried income is treated as PAYG.
- Business should be operating over 2 years and salary paid for at least 3 months.
- Does not require any NOAs, tax returns or financials.
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The income from your last job
Have you just started your new business? If so then one of our lenders may be able to use the income from your most recent job.
As a general rule, you must meet the following criteria:
- Your business must be in the same line of work as your last job.
- Your business must be less than 18 months old.
- You must show that your business is currently trading.
- Ideally, your business should be in the service industry with low expenses.
- You must be borrowing less than 80% of the value of your property.
The idea behind this method of verifying your income is that you are already experienced in this line of work and you could always go back to working for someone else if your business didn’t make much money.
Did you have a high paying job before you started your business?
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will see if we can help you get approved.
Is this a low doc or full doc loan?
Since you are not providing current income evidence for your business, this is considered as a low doc loan.
Who can use this method?
This is ideal for a professional such as an accountant, lawyer, or other white collar workers who have gone out and started their own business.
How much can I borrow?
You can borrow a maximum of 80% of the property value.
No income evidence
If you cannot prove your income at all, you can consider applying for a no doc loan. This is only available for loans that are not regulated by the National Consumer Credit Protection (NCCP) act.
Please refer to our no doc page for the full qualifying criteria.
Apply for a home loan
There are several methods that you can use to verify your income!
Please call us on 1300 889 743 or enquire on our website and one of our mortgage brokers will assess your situation and find the best solution for you to get approved for your mortgage.
Future Income
Income forecasts
Are you investing in your business to achieve a high rate of growth? If so then you may be able to provide a forecast of your future income.
As a general rule you must meet the following criteria:
- Your tax returns must show a profit.
- You must be borrowing for business purposes (i.e. releasing equity as a business loan).
- You must provide an accountant prepared or verified profit forecast.
- You have real estate as security for your loan.
Which lender can accept a projected income for your business loan? Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will see if we can help you.
Who can use this method?
This is only available to people who are borrowing for business purposes. This is ideal for a property-owner who wants to release their equity for their business.
How much can I borrow?
Typically, you can borrow up to 80% of the value of your property.
Next year’s tax returns
Do you have a cash based business with a good income? Have you considered paying your full tax for one financial year?
By doing so we can then use this income to get a loan.
As a general rule you must meet the following criteria:
- Your business must be over 24 months old.
- Your next tax return must show a good income.
- You can borrow up to 90% of the property value.
Some lenders only require tax returns for one year to prove your income. If you declare your real income for one year on your tax return, we can help you get approved.
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will discuss the income evidence that you can provide.
Interim financial statements
Do you use MYOB, Quickbooks or a bookkeeper? If so, you may be able to provide interim financial statements as evidence of your self employed income.
As a general rule, you must meet the following criteria:
- Your interim financials must show a high income.
- Your accountant or bookkeeper must sign off that the financials are true and correct.
- You must provide an additional document to support your interim financials.
- If you also provide BAS statements, you can borrow up to 70% of the property value.
- If you also provide old tax returns, you can borrow up to 80% of the property value.
This method has no hard and fast rules. Our goal is to get the lender to accept your interim financial statements instead of your previous years’ tax returns. To do this, we may also show a range of other documents.
Who can use this method?
This method is ideal for someone who has had the turnover of their business increase since the end of the last financial year.
By showing your business’s current figures, we can sometimes get one of our banks to consider your current income instead of your historic income.
How much can I borrow?
This is a full doc loan, otherwise known as a normal loan. You can borrow up to 80% of the property value and you can obtain discounted interest rates.
Standard Verification
Normal income verification
The normal way for a self employed person to verify their income to a bank for a full doc loan is to provide:
- Last two years’ financial statements (Profit & loss and balance sheet).
- Last two years’ business tax returns.
- Last two years’ personal tax returns.
- Last two years’ notices of assessment.
All lenders will accept the above information as full evidence of your income. However this doesn’t work for every self employed person.
What if your tax returns aren’t up to date? What if your income has changed since your last tax return was lodged?
The good news is there are other ways to prove your income.
Low doc income verification
With a low doc loan, you still need to provide some evidence of your income due to the NCCP Act.
However, banks are much more lenient, and will use the income that you declare to them along with one of the below documents:
Can you verify your income using one of these methods?
If so, please call us on 1300 889 743 or enquire online and one of our mortgage brokers will go through the low doc options available to you.
Adding back expenses
You provide your two years’ tax returns as you would for a normal loan; however, you provide evidence of expenses that the lender should add back to your taxable income.
This increases your taxable income, allowing you to qualify for a loan with full income evidence!
We can add back the following expenses:
- Extra superannuation contributions.
- Losses carried forward from prior years.
- Negative gearing deductions from your investment properties.
- One off expenses such as moving your business or a lawsuit.
- Instant asset write-offs (e.g. the special $30,000 instant write-off in 2019).
- Trust distributions to family members for tax purposes.
- Depreciation.
Not every lender can use these “add backs”.
Who can use this method?
This is particularly useful for people who have a business that has significant depreciation. For example, a trucking company, video store or any business with many depreciable assets can use this method.
However, any business with a good income yet has had some major expenses in the previous year can consider this option.
How much can I borrow?
This is a full doc loan, otherwise known as a normal loan. You can borrow up to 95% and you can obtain discounted interest rates.
Trust income
Some people have a complex financial situation with many companies and trusts set up, yet have a taxable income that can easily prove affordability.
This is common with business owners who are trying to maximise asset protection.
Banks typically require that you provide financials for all of these entities which is often unnecessary.
Some of our lenders will allow you to provide two years Notices of Assessment (NoAs) without any tax returns.
To qualify, you must be self-employed and be borrowing no more than 80% of the property value.
Need to verify your income alternatively?
There are several ways to verify your income! Our experienced mortgage brokers can assess your situation to recommend the best option for you.
Please call us on 1300 889 743 or enquire on our website to speak with one of our mortgage brokers and find the best solution for you.