Self-employed and planning to buy? What to sort out before 30 June

If you run your own business, a contracting outfit or a sole trader ABN, the end of the financial year matters more to your home loan than most people realise. Lenders don't see what's in your head or your business bank account. They mostly see what's on your tax return and notice of assessment. What you do in May and June can shape what a lender reads next year.

This guide covers the paperwork, the timing of your returns and the conversation to have with your accountant. It isn't tax advice. Your accountant can advise on anything to do with tax.

Why 30 June matters for a home loan

For self-employed borrowers, many lenders work out your income from your most recent one or two years of lodged returns. Some average the two years. Some use the lower year if income has dropped. Some will use the latest year alone if it's higher and the business looks stable. It depends on the lender and your circumstances.

That means the year ending 30 June could become the year that sets your borrowing power. If you're planning to buy in the next 12 months, it pays to think about how that year will look on paper before it closes.

Illustrative example: say your business earned a taxable income of around $120,000 last year. This year, deductions bring taxable income down to around $80,000. A lender that uses the most recent year, or the lower of two years, would generally start from the $80,000 figure. Some lenders allow certain items to be added back, but that depends on the lender and what the items are.

The documents lenders usually ask for

Requirements vary, but many lenders ask for some or all of the following from self-employed applicants:

• Personal tax returns for the last one or two years
• ATO notices of assessment that match those returns
• Company or trust tax returns and financial statements, if you trade through a company or trust
• Recent business activity statements (BAS)
• Business and personal bank statements
• Your ABN details and how long it has been registered
• Details of any ATO debt and any payment arrangement

Your notice of assessment is the ATO statement that explains how your tax assessment was calculated. If the ATO is linked to your myGov account, it's usually sent to your myGov Inbox. If you can't find it, you can look in your ATO communication history through myGov. Pull these together now so you aren't hunting for them when you find the right property.

Lodging your returns on time

The ATO's usual deadline for people lodging their own return is 31 October. If you use a registered tax agent, you may have a later due date, depending on your situation and when you engaged the agent. If you're new to a tax agent or switching agents, the ATO says to contact them before 31 October so you can be added to their lodgment program.

A later due date is handy for cash flow, but it can slow down a home loan. If your latest return isn't lodged, some lenders will assess you on older figures, and others may want the new return before they'll go further. If you plan to buy soon after 30 June, ask your accountant whether your return can be prepared and lodged early.

Keep BAS lodgements current too. Overdue lodgements or an ATO debt without a payment arrangement can raise questions with a lender. If you do have an ATO debt, tell us early. Many lenders will still consider an application where the debt is on a formal payment plan and being kept up to date.

What to talk to your accountant about

Your accountant's job is to get your tax right. Our job is to get your loan to fit a lender's policy. The two goals usually line up, but not always, so it helps to have the conversation before 30 June. Questions worth asking:

• Roughly what will my taxable income look like for this financial year?
• Are there one-off or non-cash items, such as depreciation or a one-off expense, that a lender might add back?
• When can my return and notice of assessment be finished and lodged?
• Will my financial statements clearly show what I've drawn from the business?

Your accountant can advise on tax decisions such as timing expenses or buying equipment. We won't advise on that. What we can do is show you how a given income figure is likely to be assessed by different lenders, so you and your accountant can make decisions with the full picture.

Other things to tidy up

• Separate accounts. Keeping business and personal money in separate accounts makes your income easier for a lender to follow.
• Your deposit trail. Lenders want to see where your deposit came from. Regular savings in a personal account are easier to show than transfers out of the business at the last minute.
• Existing debts. Car, ute and equipment loans, credit card limits and buy now pay later accounts all count against your borrowing power. Closing unused card limits may help.
• ABN history. Many lenders look for around two years of trading. Some may consider less, depending on your industry experience and circumstances.

For contractors in the Bowen Basin who've moved from a mine-site wage to an ABN, your history in the industry can matter as much as how long the ABN has been active. Some lenders look at that history. Some don't.

If your returns aren't ready

Some lenders offer options for self-employed borrowers who can't provide full tax returns, using other evidence such as BAS or an accountant's declaration. These usually have different conditions and may cost more. Whether one suits you depends on the lender and your circumstances. You can read more on our self-employed home loans page, and if you're buying an investment, see investment loans.

Getting a conditional pre-approval before you start serious house hunting also gives you a clearer idea of where you stand.

Talk it through

If you're self-employed and thinking about buying in the next year, a short chat before 30 June can save you time later. Call or text us on 0458 773 002, or book a free assessment at our contact page. For most home loans there's no broker fee; any fee is disclosed upfront in our Credit Guide.

Common questions

Sources

• ATO: Lodge your tax return with a registered tax agent
• ATO: Your notice of assessment

This guide is general information only and doesn't take into account your objectives, financial situation or needs. Talk to us about your circumstances before acting on it. Related: Self-employed loans.