Self Employed Income
Business income earned by borrowers operating under an ABN as sole traders, through a company, or via a trust structure.
In detail
Self employed lending is document heavy. Sole traders are assessed on personal tax returns and notices of assessment. Company borrowers require two years of company tax returns and financial statements plus the director personal returns. Trust structures add trust tax returns to the pack. Most lenders average the two most recent years, though some will take the lower of the two or accept the most recent year only for specific policies.
Add backs are a critical part of self employed assessment. Depreciation, one off expenses, interest on loans being refinanced, director salaries, and superannuation above minimum can be added back to net profit to arrive at assessable income. Each lender has a specific list of permitted add backs.
Why it matters for brokers
Self employed files require careful structuring. Brokers who understand add backs and lender preferences for trading structures can present self employed clients in the best possible light without overstating income.
Example in practice
A sole trader tradesperson showed net business income of $95,000 and $110,000 over the past two financial years. The broker averages to $102,500, adds back $6,000 of depreciation and $4,500 of home office costs, and presents assessable income of $113,000.
Related terms
ABN Income
Income earned by a sole trader, partnership, company, or trust operating under an Australian Business Number.
Notice of Assessment (NOA)
A statement issued by the Australian Taxation Office confirming the income declared on a lodged tax return and the tax assessed.
Base Salary
The fixed regular component of a PAYG employee income, excluding overtime, bonuses, commissions, and allowances.
Year to Date (YTD) Income
The cumulative gross income an employee has earned since the start of the financial year, shown on each payslip.
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