What Expenses Lenders Add Back To Your Income in Perth, WA, The Self-Employed Broker's View
If you're self-employed and your last tax return shows a lower net income than what you actually earn, you're not alone. Most sole traders and company directors write off legitimate business expenses to reduce their taxable income. The problem is, that same figure is what lenders use to assess your borrowing capacity.
Add-backs are the mechanism lenders use to reverse certain non-cash or one-off deductions, restoring a more accurate picture of your actual income. Getting this right can mean the difference between a loan that fits your situation and one that falls short by $100,000 or more.
At Launch Finance, we work with self-employed borrowers across Perth, WA every week, comparing options from our panel of 60+ lenders. A self-employed home loan depends heavily on how your income is presented, and that's where lender choice makes a real difference.
Key takeaways
- Depreciation and one-off costs are commonly added back to self-employed income.
- Add-back policies differ significantly between lenders on the same panel.
- Two years of tax returns is the standard, though some lenders accept one.
What exactly is a lender add-back?
An add-back is an expense your accountant has deducted from your business income for tax purposes that a lender is prepared to add back, restoring it to your assessable income figure. Lenders recognise that some deductions reduce taxable profit without reducing actual cash available to service a loan.
The starting point for most lenders is your net profit after tax, drawn from your tax returns and financial statements. From there, specific non-cash or one-off items are added back, and the result is the income figure used to calculate your borrowing capacity. Because the process relies on a two-year average in most cases, a single strong year doesn't automatically fix a weak prior year.
"The most common thing we see is a self-employed borrower who has been running their business well for years, but their returns show a net profit that doesn't reflect what they actually take home. The add-back conversation is often the point where the borrowing picture changes entirely."
Joe Del Borrello · Director, Launch Finance · Chat to the Launch team →
Which expenses do lenders commonly add back?
Not every deduction on your return qualifies. Lenders look for items that reduce taxable income without reducing the cash available to you. The most widely accepted add-backs include:
The most commonly accepted items:
- › Depreciation: a non-cash deduction for asset wear. It reduces taxable profit but no money leaves the business, so most lenders add it back in full.
- › One-off or non-recurring expenses: a legal settlement, a significant equipment write-off, or a cost that the accountant treated as an expense but won't recur. Many lenders will add these back where they are clearly non-recurring.
- › Interest on business borrowings: interest charged on existing business loans is sometimes added back, particularly where the loan is being repaid or refinanced as part of the same application.
- › Superannuation contributions above the minimum: voluntary or above-minimum super contributions deducted as a business expense may be added back by some lenders, as they represent a discretionary outgoing.
- › Amortisation of goodwill or other intangibles: an accounting entry rather than a cash expense, treated similarly to depreciation by most lenders.
What lenders will not add back
Several deductions look like add-back candidates but consistently get rejected. Wages paid to genuine employees, even a spouse or family member, are treated as a real business cost. Rent paid on a business premises, motor vehicle running costs, and marketing spend are generally assessed as genuine ongoing expenses and are left in.
Home-office deductions are a grey area. Where the proportion claimed is small and consistent with the nature of the work, some lenders look past it. Where the deduction is large relative to the business type, it raises questions about how the business actually operates.
Retained profits held inside a company structure do not automatically become available income. Some lenders will consider them, particularly where the borrower is the sole director and shareholder, but the policy differs substantially between lenders. This is one of the areas where lender selection changes the assessed income figure most significantly.
How much can add-backs change what you can borrow in Perth, WA?
The effect depends on how much has been depreciated and what one-off items appeared in the return. For a self-employed borrower in Perth with significant plant and equipment, depreciation alone can be a material figure across two years of returns.
Consider a sole trader whose tax return shows a net profit of $95,000 after a $30,000 depreciation deduction and a $15,000 one-off legal cost. With both items added back, the assessable income becomes $140,000 for that year. Averaged with a prior year, the resulting figure can shift borrowing capacity substantially. Whether a lender accepts both items, one, or neither depends on their credit policy on the day of the application.
Property markets across Perth also matter here. House medians range from $700,000 in Armadale to over $2.29 million in Subiaco, according to REIWA data. For self-employed buyers looking at mid-range suburbs like Morley, Victoria Park or Cannington, a meaningful add-back can determine whether an 80% LVR loan is within reach or whether LMI enters the picture.
Source: REIWA (Landgate data, August 2026).
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How do lenders actually assess self-employed income?
The standard approach is a two-year average of net profit, after your accountant's add-backs are applied and the lender's credit team has reviewed them. Most lenders want two full years of tax returns and financial statements. Some accept one year where the business has a longer operating history, the income is trending upward, and the accountant provides a declaration.
Trust structures and company directors face additional questions. Where income is drawn as a combination of wages, director fees and trust distributions, lenders assess each stream differently. Some count all three where the borrower controls the structure; others restrict the assessment to the wage component alone. That difference can move the assessable income figure substantially on the same set of financials.
What lenders typically look at across two years:
- › Income trend: rising income across the two years is viewed more favourably than declining income, even where the average is the same.
- › Business continuity: an ABN and GST registration with at least two years of history signals stability. A newly registered ABN raises questions about the income pattern going forward.
- › Business profitability: the business needs to demonstrate it is genuinely profitable, not just revenue-generating. Lenders look at whether the net profit is sufficient to both service the loan and sustain the business.
- › Industry type: some lenders apply more scrutiny to industries they classify as higher-risk or more cyclical. This varies by lender and is not published anywhere.
When does the add-back approach not work in your favour?
If your business has genuinely produced a low net profit over two years, add-backs may not be enough to change the assessed income figure materially. Depreciation only helps where there are depreciable assets. One-off expenses only help where they are genuinely non-recurring and can be documented as such.
Where income has declined from year one to year two, most lenders will use the lower of the two years rather than the average. That is a position worth understanding before you apply, because the timing of your application matters. Waiting one more reporting period with a stronger current year can sometimes produce a meaningfully different result.
For borrowers in a year of strong income growth following a weaker prior year, a low-doc or alt-doc pathway through a specialist lender may be worth assessing alongside a full-doc application. The rate is typically higher, and the LVR cap is usually lower than a full-doc loan, so the trade-off needs to be weighed against your specific numbers rather than assumed to be the right path.
"Where we see applications run into trouble is when the borrower and their accountant have structured the returns to minimise tax very effectively. That's entirely legitimate, but it works against the income figure a lender sees. The conversation to have before applying is whether your accountant's approach to the last two returns positions you well for a loan assessment, not just a tax assessment."
Joe Del Borrello · Director, Launch Finance · Chat to the Launch team →
How to get your add-back application right in Perth, WA, step by step
Step 1: Talk to us
We start by reviewing your last two years of returns and identifying which add-backs are likely to be accepted, and which lenders on our panel have the most favourable policy for your income structure.
Step 2: Work with your accountant before lodging
If your most recent return hasn't been lodged yet, there may be an opportunity to structure it in a way that positions your income more clearly for a lender assessment, without changing the underlying tax position.
Step 3: Match you to the right lender
We compare policies across our panel for your specific income type, whether that's a sole trader with depreciation, a company director with retained profits, or a trust structure with mixed distributions.
Step 4: Manage the application through to approval
Self-employed files often require more documentation than a PAYG application. We coordinate the process with you and your accountant so the lender gets a complete, well-presented package the first time.
What challenges do self-employed borrowers face with add-backs?
Where applications commonly run into difficulty:
- › Declining income between years: where year two is lower than year one, most lenders will use the lower figure, not the average. A strong current trading position may not help if the prior year was weaker.
- › Non-recurring expenses that look recurring: a lender's credit team may not accept an item as one-off without clear documentation showing it won't appear again. The accountant's notes are usually what decides this.
- › Business debt on the books: existing business loans, equipment finance or an overdraft all count as commitments against your serviceability, even where the income from the asset offsets the cost in the business.
- › Applying to the wrong lender: a lender with a conservative add-back policy may assess the same returns at significantly less than one with a generous policy. Applying to the wrong one first creates a credit enquiry and a decline on the file.
- › Returns not yet lodged: some lenders will not assess income from a return that hasn't been lodged with the ATO, even where the financials are finalised. Timing the application around lodgement can matter.
Frequently Asked Questions
What is an income add-back for a self-employed borrower?
An add-back is an expense your accountant deducted from business income that a lender reverses to get a clearer picture of your actual cash income. Depreciation is the most common example, since no money leaves the business when it's applied.
Do all lenders accept the same add-backs?
No, add-back policies differ between lenders and are not publicly listed. Some lenders accept retained profits and above-minimum super contributions; others restrict add-backs to depreciation and clearly documented one-off costs.
Can I use one year of tax returns instead of two?
Some lenders accept one year where the business has been operating for longer and income is trending upward. Most still require two years, and a small number of specialist lenders offer alt-doc pathways for borrowers who cannot supply full returns.
Does my business structure affect my assessed income?
Yes. Sole traders, company directors and trust beneficiaries are assessed differently. A company director drawing wages, dividends and retained profits will find lenders apply varying policies to each income stream, which is why lender selection matters here.
Should I wait until my next tax return is lodged before applying?
If your current trading year is materially stronger than the prior year, waiting until the return is lodged can improve your assessed income under a two-year average. It's worth modelling both scenarios before committing to a timeline.
Is a mortgage broker better than going directly to a lender for a self-employed application?
A mortgage broker, every time. Self-employed add-back policies differ across lenders and aren't published side by side anywhere. A broker who knows which lenders apply which policies to your structure can match you to the right one before a credit enquiry hits your file.
Your Next Steps
Getting your self-employed income assessed correctly is often more about lender selection and application preparation than it is about the underlying financials. The same two years of returns can produce a very different borrowing outcome depending on which lender reviews them and how the add-backs are presented.
The right lender for a self-employed application depends on your situation, and that's a conversation worth having. Talk to the Launch Finance team or call 08 9367 4222, and we'll compare your options across 60+ lenders.
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External Resources
Launch Finance · Perth, WA · Launch Finance Pty Ltd (ABN 17 163 528 701), Corporate Credit Representative 454041 of BLSSA Pty Ltd (ABN 69 117 651 760), Australian Credit Licence 391237 · General information only - this article does not constitute financial advice. Please consider your own circumstances and seek professional advice before making any financial decisions.
