In short: Lenders assess self-employed income from your tax returns and financials, usually averaging the last two years, and then add back certain non-cash or one-off expenses. Which add-backs a lender accepts - depreciation, additional superannuation, one-off costs, interest on debts being refinanced - varies enough between lenders to move borrowing capacity by six figures on the same application.

Key takeaways

Most lenders average two years; some use the most recent year if it is lower, others if it is higher.
Add-backs are where lenders differ most - depreciation and extra super are the common ones.
Company and trust structures need the entity financials, not just your personal return.
Lodging returns promptly is the single most useful thing you can do before applying.

How the income figure is built

For a sole trader, the starting point is net profit from your individual return. For a company or trust, it is your salary plus your share of profits, taken from the entity financials.

Lenders then apply add-backs - expenses that reduced taxable income but are not genuine ongoing cash costs:

Add-back	Commonly accepted?
Depreciation	Yes, almost universally
Additional (voluntary) superannuation	Usually
One-off or non-recurring expenses	With evidence
Interest on debt being refinanced	Often
Net profit retained in the company	Varies significantly
Motor vehicle and home office	Rarely

Two years, one year, or the lower of both?

Policies differ in ways that matter:

Average of two years - the mainstream approach, and it penalises a strong recent year.
Most recent year only - some lenders will use it where income is rising, which suits a growing business.
Lower of the two - the most conservative, and common where income has fallen.
Declining income - if the latest year is materially down, most lenders use it regardless of the average.

If your business is growing, finding a lender that uses the most recent year can be worth more than shopping on rate.

Preparing the application

Lodge your returns. Nothing else you do matters as much - an unlodged year forces you into low doc.
Get the full financials, not just the tax return: profit and loss, balance sheet, and the entity returns for every structure.
List the add-backs yourself with evidence, rather than relying on the assessor to spot them.
Clean up the personal accounts - six months without dishonours or unarranged overdrafts.
Reduce credit card limits, which are assessed in full whatever the balance.

Frequently asked questions

How long must I be self-employed?

Two years is the mainstream benchmark for full doc. Some lenders accept twelve months where you were previously employed in the same industry, and low doc options exist below that.

Do lenders count retained company profits?

Some do, some do not, and it can be the single biggest swing in a company structure. If you retain profits in the business, seek a lender whose policy recognises them.

Is it harder to borrow as a sole trader than a company?

Not inherently. Sole trader income is simpler to assess; company and trust structures need more documentation but can support more add-backs. The structure matters less than the quality of the records.

Related reading

Sources

Prudential Practice Guide APG 223 — APRA
Income tax for business — Australian Taxation Office

Information current as at 2 August 2026.

General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.

Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.