The standard rule for self-employed home loans is two years of tax returns. But plenty of business owners don’t have that yet, or their older return doesn’t reflect what they earn today. The good news is that the two-year rule isn’t as fixed as many people think.

Do you really need two years of tax returns?

Many lenders still ask for two years of personal and business tax returns, financial statements and notices of assessment. However, a number of lenders, including some major banks, will consider just one year of tax returns if the rest of your application stacks up.

Who can qualify with one year?

Every lender is different, but the common requirements are:

• Your ABN has been registered for a while. Many one-year options need around 18 months to 2 years of trading, even if only one tax return is lodged.
• Your latest tax return and notice of assessment are available and show enough income
• A deposit of 20% or more. Many one-year options cap lending at 80% of the property value.
• Experience in your industry. Lenders are more comfortable if you worked in the same field before going out on your own.

Some lenders have special policies for professionals such as accountants, lawyers and medical practitioners, who may qualify with as little as 12 months of trading.

How lenders work out your income

This is where lenders differ the most, and where the choice of lender can make a big difference to how much you can borrow:

• Some use your latest year’s income as it is
• Some use a percentage of it, for example 90%
• Some average two years, which can drag your figure down if you’ve grown
• Many will add back certain expenses, such as depreciation, one-off costs and interest on loans being refinanced

Two business owners with the same income could get very different borrowing amounts depending on which lender assesses them.

What if you don’t have a full year yet?

If you’ve been trading for less than a year, or your first return isn’t lodged, a low-doc home loan may be an option. These use BAS, bank statements or an accountant’s letter instead of tax returns. Some lenders may also consider your income if you’ve moved from being an employee to a contractor in the same role.

How to give yourself the best chance

• Lodge your tax return as soon as you can after 30 June
• Keep your BAS and tax lodgements up to date
• Keep business and personal spending in separate accounts
• Pay down personal debts and credit card limits before applying
• Talk to a broker before your accountant finalises your return, so you understand how lenders will see it

A typical scenario

Take an electrician who worked for a large company for eight years, then started their own business two years ago. Their first year had set-up costs, but their latest tax return shows strong income. A lender that uses the latest year only could assess them on that figure, rather than averaging it with the weaker first year.
This is an illustrative example only. Every situation, lender and outcome is different.

Frequently asked questions

Can I get a home loan with only one tax return?

Yes, with some lenders. You’ll usually need your ABN registered for around 18 months to 2 years and a deposit of at least 20%.

Will my older, lower income count against me?

Not always. Some lenders use only your latest year, which can help if your income has grown.

Can a company director use one year of financials?

Some lenders will, but they may also check your entitlement to the company’s profits. A broker can work out which lenders suit your structure.

What if my return isn’t lodged yet?

Some lenders will accept your prior year supported by recent BAS or a profit and loss statement, or you could look at a low-doc loan.

Talk to us first

Applying to the wrong lender can mean a lower borrowing amount or a decline on your credit file. We’ll look at your numbers and match you to a lender whose policy fits how you earn.

General information only. This article doesn’t consider your objectives, financial situation or needs, and isn’t credit or tax advice. Home loans are arranged by Stratium Finance Group Pty Ltd (ABN 65 696 556 804), Corporate Credit Representative 578600 of Yellow Brick Road Aggregation Pty Ltd, ACL 390261. All loans are subject to lender approval, terms, conditions, fees and charges.