Most lenders assess your income using two years of tax returns, not your gross billings.
If you operate through a practice, trust, or company structure, the income you declare for tax purposes often looks different from what you actually earn. Lenders understand this, but their approach varies considerably. Some will assess you on taxable income alone. Others will add back depreciation, one-off expenses, or distributions you've retained in the business. The difference can shift your borrowing capacity by hundreds of thousands of dollars.
How lenders assess income from a private practice
Lenders typically require your last two years of tax returns plus a year-to-date profit and loss statement if you're more than three months into the current financial year. They assess the lower of the two years unless there's a clear upward trend supported by your accountant's letter.
Consider a surgeon operating through a family trust who shows $180,000 in taxable income after distributing $120,000 to a spouse and retaining $80,000 for equipment purchases. One lender might assess you at $180,000. Another might recognise the full $380,000 in trust income before distributions. A third might add back the equipment depreciation if it's a non-cash expense, landing somewhere in the middle. The structure you chose for tax efficiency can limit your borrowing unless the broker knows which lenders will look past the ATO figures.
Your accountant's letter carries weight if it confirms the sustainability of your income and explains any one-off deductions. Lenders want to see that your taxable income reflects an ongoing position, not a year where you wrote off a fit-out or took extended leave.
Why your ABN age matters more than your appointment book
Most lenders require at least two years of ABN registration and trading history before they'll assess your self-employed income. If you've been operating for 18 months, even with a full patient list and strong billings, you'll likely need to wait or provide alternative documentation.
A handful of lenders will consider 12 months of trading for medical professionals, particularly if you've transitioned from a salaried role in the same field. In that scenario, the lender may accept one year of tax returns combined with evidence of your previous employment to establish continuity of income. This still requires a completed financial year, not just six months of strong profit and loss figures.
If you're newly self-employed and need to move quickly, some lenders will assess you on your previous PAYG income for up to 12 months after you leave employment, provided you haven't yet lodged a tax return as self-employed. Once that return is lodged, you're assessed as self-employed regardless of timing.
Variable and offset versus fixed certainty
A variable rate with a linked offset account allows you to park practice income between tax payments and reduce the interest you're charged daily. If you're holding $60,000 in the offset for an upcoming tax bill, that's $60,000 of your loan balance that isn't accruing interest.
Fixed rates provide certainty, but they don't pair with offset accounts. If your income fluctuates or you're managing lumpy billing cycles, locking in a rate without offset access can cost more than the security is worth. A split structure lets you fix a portion for stability while keeping the remainder variable with offset access. This works well when you want protection against rate rises but still need flexibility around irregular income.
Interest-only periods can be useful if you're building a practice and need lower repayments in the short term, but they don't reduce your loan balance. Most lenders offer up to five years interest-only on owner-occupied loans, longer on investment lending. The application needs to show a clear reason, not just preference.
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How your structure affects what you can access
If you operate as a sole trader, lenders assess your individual tax return. If you operate through a company or trust, they assess the entity's financials and your entitlement to that income. Company structures often require director guarantees, and trust structures require evidence of distributions or entitlement.
Some lenders won't recognise retained earnings unless you can show they'll be distributed. Others will assess you on the full net profit of the trust or company if you're the primary beneficiary or shareholder. The difference is significant. A practice turning over $600,000 with a net profit of $350,000 might leave you assessed at $150,000 if you've distributed conservatively, or at $350,000 if the lender recognises your full entitlement.
Your accountant's structure might be optimal for tax, but it may not be optimal for borrowing. If you're planning to buy property, it's worth discussing your structure with both your accountant and broker before you lodge your next return. Small adjustments to how you distribute or retain income can have a large impact on what lenders will offer.
What documentation actually gets reviewed
Lenders will request your last two years of individual tax returns, notices of assessment, business tax returns if applicable, and a current profit and loss statement. If your income has increased, they'll want an accountant's letter confirming the trend and your sustainable income level.
They'll also review your business bank statements, usually the last three to six months, to verify the deposits match your declared income. If you're showing $300,000 in billings but your bank statements show $180,000 in deposits, they'll ask where the difference sits. If it's in a practice account or trust account, you'll need to provide those statements as well.
If you're claiming add-backs like depreciation or one-off expenses, your accountant will need to specify those figures and confirm they're non-cash or non-recurring. Lenders won't accept unexplained adjustments.
Pre-approval with self-employed income
A home loan pre-approval gives you a conditional commitment from the lender before you find a property. With self-employed income, pre-approval requires full income verification upfront, not just a deposit check and credit pull.
You'll need to provide the same documentation as a full application: tax returns, financials, profit and loss, accountant's letter. The lender reviews your income, confirms your borrowing capacity, and issues conditional approval subject to property valuation and final checks. This process typically takes three to five business days once all documents are provided.
Pre-approval is valid for three to six months depending on the lender. If your circumstances change during that period, such as a new tax return being lodged or a change in your business structure, the lender may need to reassess.
When LMI becomes part of the calculation
If your deposit is less than 20% of the purchase price, you'll pay Lenders Mortgage Insurance. LMI protects the lender, not you, and the cost increases as your deposit decreases. At 10% deposit, LMI can add $15,000 to $30,000 depending on the loan amount. At 5% deposit, it can exceed $50,000.
Some lenders waive LMI for medical professionals borrowing up to 90% of the property value, and a small number will go to 95%. These arrangements are limited to doctors, dentists, and specialists with specific qualifications. Eligibility usually requires you to be within ten years of graduating, and the waiver applies only to owner-occupied purchases, not investment loans or refinances.
If you don't qualify for an LMI waiver, the premium is typically capitalised into the loan rather than paid upfront. This increases your loan amount and your ongoing repayments, but it means you don't need to find the cash at settlement.
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Frequently Asked Questions
How do lenders assess income if I operate through a trust or company?
Lenders assess the entity's financials and your entitlement to that income. Some recognise only distributions you've taken, while others assess the full net profit if you're the primary beneficiary or shareholder. The difference can significantly affect your borrowing capacity.
Can I get a home loan with only one year of self-employed income?
Most lenders require two years of ABN registration and tax returns. A handful will consider 12 months for medical professionals transitioning from employment in the same field, combining one year of tax returns with evidence of previous PAYG income.
Do I need to pay Lenders Mortgage Insurance with less than 20% deposit?
Yes, unless you qualify for an LMI waiver. Some lenders waive LMI for medical professionals borrowing up to 90% or 95%, typically if you're within ten years of graduating and purchasing an owner-occupied property.
Should I choose a variable or fixed rate if my income fluctuates?
A variable rate with offset account lets you reduce interest on funds held for tax or irregular billings. Fixed rates provide certainty but don't pair with offset. A split structure offers both stability and flexibility.
