How is a company director's income assessed for a home loan?

A director controls their own salary. A lender cannot rely on a payslip from a company the borrower runs, because the borrower could set any figure. So lenders look through to the company: is it profitable enough to keep paying that salary, and is there more profit that belongs to the director on top? That is why company financials and tax returns are required even when the director is technically an employee.

Take the company's net profit before tax. Add the standard add-backs, including the director's own wages and super. Multiply by the director's shareholding to get their share. That figure, which now includes the wages, is the director's assessable income for that year. Repeat for the prior year, then average or take the lower depending on the lender. Dividends actually paid are not added again because they come out of the same profit. Retained profit not distributed is still counted by most lenders, on the basis that the director could have taken it, but a minority of lenders count only what was actually drawn.

With two or more shareholders, each is assessed on their share. Lenders will want to see the shareholding from the ASIC register, not just a statement. Where the director owns several companies, or a trust sits between the director and the company, lenders want the financials of each entity and will trace the income through the structure. Complex structures are not a problem, but every entity that touches the income has to be documented.

Company tax returns not lodged for the latest year, which stalls the application until they are. Profit trending down, which leads lenders to use the lower year. A large director's loan account owed to the company, which some lenders treat as a liability. Wages paid to a spouse who is not on the application, which remain an expense. A director who holds 20 per cent, just under the threshold, and is assessed as PAYG but with the lender still wanting to see the company is solvent.