Case Study: Alternative income verification for Self-employed

Marty McDonald - Wednesday, April 26, 2017

If you’re self-employed, you’ll know banks can make it difficult to borrow money. Depending on the lender and situation, they can ask for multiple years’ tax returns, P&L and balance sheets, depreciation reports, tax assessment notices, ATO portal printouts, BAS statements and often letters from your accountant or other third parties to confirm this and that. All in all it can make applying for a loan difficult. There are also significant variations in how income is assessed from lender to lender, which can have a huge bearing on your borrowing potential.


Case Study (alternative income documentation):

Recently we had a client who was a part owner for a technology business with interest in Australia, The USA and Asia. The directors and shareholders weren’t comfortable providing the company tax returns as they were deemed commercial in confidence and there may have also been some cross-border tax issues which could have potentially opened a can of worms for all involved. In a nut shell, it was complicated!

Case study solution:

We needed to find a lender that allowed an alternative income verification method for self-employed persons. The client was able to provide their personal ATO tax assessment notices for the last 2 years which the bank accepted as the sole proof of income. Note there was no investment or rental income noted on the assessment notices nor was there any capital gains noted. Therefore, legitimately the income could only be from (self) employment.

Other alternative income verification options:

There are other alternative income verification methods for the self-employed to simplify the loan process. One useful method uses the last 12 months BAS statements to confirm the businesses turnover which is then accompanied by an income declaration from the borrower and sign off from their accountant. The income declared would usually be benchmarked against an expected profit margin for the borrower’s industry. For example, for a services type business it could be acceptable to use up to 50% of the turnover as the declared income. For a business in retailing you might expect a 25% margin would be more appropriate.

You will generally need to have your ABN and be GST registered for at least 1 year, preferably 2.

Assessing self-employed income with full tax returns etc:


There are so many variations in approach here, it really is hard to summarise succinctly except to say that there can be huge discrepancies
in borrowing capacity depending on the lenders polices. 

About the Author: Marty McDonald is principal of mortgage broker “Mortgage Experts”. Marty specialises in assisting active property investors with loan structuring advice and implementation as well as helping credit worthy borrowers with slightly outside the box income and employment situations. Find Marty on  and LinkedIn.
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