Self-employed borrowers in Australia need an ABN registered for two years, GST registration for 12 months, and two years of tax returns plus the last four BAS statements. Lenders assess income using the lower of two years, which can reduce borrowing capacity. Traditional low-doc loans have mostly disappeared, though some lenders offer limited low-doc products at 60-70% LVR with higher rates.
Questions this video answers
About 2 years.
Usually at least 12 months.
The last two years' tax returns (personal and business) and associated Notices of Assessment; also personal income tax statements and business statements; profit & loss reports may be requested.
The last four BAS statements (four quarters).
If there is less than a 20% difference between the last two years, lenders may average them.
Chapters
Now if you're self employed, there's a lot more paperwork that you'll need to gather in order to prove your income. Lenders will want to see that you have had an Australian business number registered for two years and usually registered for GST for at least 12 months. They're going to require your last two tax returns, personal and business and associated notices of assessment issued by the ato. They'll usually want your personal income tax statements and statements from your business, plus potentially your business profit and loss reports and your last four BAS statements as well. Now, some lenders will allow add backs on top of the business earnings. These are costs to the business that they're willing to, for want of another word, overlook. So loan repayments, depreciation, additional super contributions. However, I'm sure by now this is not going to come as a shock to you, but all lenders assess things differently. Your lender may not allow you to add back, so that's why it's so vitally important that when you get your pre approval it is fully assessed so you can buy with confidence. Lenders will also expect to see your tax return completed by January for the previous year. In most however, there's one or two that you can push out to March, April or May. In my experience, many self employed people leave their tax return as long as possible, but it's important to note that if you don't have it done on time, this may actually hold up your buying process. Some lenders have a no exceptions policy, so if you don't have the previous year's tax return done, then they may not even accept your application. Alternatively, they will only take the income of the previous two years into account. A mistake many self employed people make is that they think that their earnings from last year will be the income the lender will consider as most businesses grow year upon year. Usually the last year out of the last two years would seem to be the most profitable. But note however, the lender will usually take the lower year's income or at best if there's less than a 20% difference between the last two years, they'll average them. This could reduce the amount you can borrow. Especially if you've been online and used a lender's calculator to see what your borrowing capacity is, you'll be in for a rude awakening when you actually speak to a lender. I would normally suggest that any self employed person works with a mortgage broker. You often only get one chance of getting this right, so use a professional who does this every single day of the week. Also be aware that accountants try to minimise your earnings for legitimate reasons, but this could actually count against you when your lenders assess your income. So if you're planning on giving up your job and to complicate things further buying in a company, then make sure you think about how the lenders are going to treat you, especially if you don't have two years worth of income tax as proof. Essentially, you need to keep your job. As an extra tip, just in case you are planning on doing your renovation in a company name, just be careful on naming it the company. The name XYZ Mega Property Portfolios may scare off a lender. Just keep it as xyz. As for your lender looking over your renovation portfolio and business plan and giving you an approved sticker, well, let's just say it's nice in theory, but reality is the they'll look at your application like anyone else's. They're going to look at your income, your expenses and what you do with your money. Remember, a bank's credit department will see hundreds of applications each day. They know what to look for and they're not hoodwinked. So keep it honest. And remember, lying on an application is actually called fraud. Now let's move on to lodocs. Essentially, they've gone away. As an aside, if you think that a low doc loan will be your answer so you don't need to pay much attention to getting all this right, think again. Pre 2007 it was not uncommon to write on a piece of paper an arbitrary number and list that as your income and not have to prove it with low doc loans. These loans were set up for not only self employed people, but anyone who registered for an Australian business number. Even after just one day, they could apply for a low doc loan. Essentially, the default lever on these loans is higher than any other loan. And now lenders understand that you may not have all your tax returns done. So they want to see your last four quarters of BAS statements. That's your business activity statements. So if you're writing BAS statements, that's your business activity statements. So essentially the low doc loan is no more. They need proof. They want to see your best statements. However, there are some lenders out there who do offer something like the old low doc loan, often at a lower loan to value ratio, maybe 60 or 70%, but at higher interest rates. However, there are some lenders out there who will offer low DOC loans. They are coming back onto the market. There are some available who don't require a BAS statement from you. However, they're usually at a lower loan to value ratio, maybe 60 to 70%, and they're often at higher interest rates. However, it is an alternative that you may consider.
