Sole trader home loan requirements

• Two years of personal tax returns showing the business schedule, and the ATO notices of assessment for each
• ABN registration details and GST registration if applicable
• Six months of business bank statements at many lenders, to confirm the trading pattern
• Recent BAS where the last return is more than six months old
• An accountant's details, and sometimes an accountant's letter confirming the business is trading and solvent
• Personal statements, identification and the usual application documents

Net profit from the business schedule of the tax return is the starting point. Lenders add back depreciation, interest on business loans being refinanced, superannuation above the compulsory rate and documented one-off expenses. They then average the two years, or use the lower year if the latest is lower, and some cap the increase if the latest year is more than 20 per cent above the prior one. The result is the assessable income, and the loan is sized on it after living expenses and other debts.

The latest return not lodged, which stalls everything until it is. Income minimised for tax so aggressively that the assessable figure will not support the loan, which is the accountant and the lender pulling in opposite directions. A recent switch from PAYG to sole trading, which shortens the history. Tax debt showing on the notice of assessment, which some lenders treat as adverse. And turnover under the GST threshold with no BAS, which leaves bank statements as the only alt doc evidence.

Alt doc lenders assess turnover from BAS or bank statements and apply an industry margin, which can produce a higher figure than a minimised tax return. LVR is usually capped at 80 per cent and rates are slightly higher. For a sole trader with a strong business and a light tax return, alt doc is often the better path, and a specialist will run both before choosing.