This prompt guide is locked.
Access to Day 12 requires starting the series. One new prompt unlocks every 24 hours.
Self-Employed Borrower Check.
Lenders assess self-employed income differently to PAYG income. Addbacks, business financials, trust distributions, company structures, and the two-year assessment window all change your borrowing position. This prompt maps the lender’s view of your income before you apply.
Why this matters
Self-employed borrowers are the clients most likely to walk into a broker conversation with an optimistic view of their borrowing capacity and walk out having been told a much smaller number than they expected. Not because their income is genuinely lower — but because what they earn and what a lender will assess as income for serviceability purposes are frequently very different numbers.
The most common source of this gap is the two-year assessment rule. Most lenders require two years of self-employed income documentation and assess serviceability based on the average of those two years — or the lower of the two years if income has declined. An entrepreneur who had a break-out year last year but a slower year the year before may find their borrowing capacity is based substantially on the slower year.
The second source is the business structure itself. A sole trader’s borrowing capacity is assessed on net profit from the tax return. A company director’s income is assessed on salary plus dividends drawn — not on company profit. A trust distribution may be assessed differently again depending on the lender. Understanding which number a lender will count before you apply means you can structure the application correctly rather than discovering the issue at the credit assessment stage.
**Real case study — The good year that didn’t count the way they expected:**
A business owner came to me wanting to buy a $1.3 million property. His most recent year: $210,000 net profit. His prior year: $85,000 net profit. He had expected a capacity around $1.4 million. The two-year average told a different story.
AI · Income Assessment: Two-year average: ($210,000 + $85,000) ÷ 2 = $147,500. At standard serviceability for a self-employed borrower at current rates with the 3% buffer, estimated borrowing capacity signal based on $147,500 assessed income: approximately $610,000 to $680,000. This is significantly below the $1.3 million target.
AI · Addback Opportunity: Business financials show depreciation of $28,000 and a genuine one-off legal expense of $18,000 in the lower income year. If the lender accepts these as addbacks, adjusted prior year income: approximately $131,000. Revised two-year average: ($210,000 + $131,000) ÷ 2 = $170,500. Revised capacity signal: approximately $705,000 to $760,000. Still significantly below target.
AI · Path Forward: The most direct path to reaching the target price is to demonstrate a third year of income at or above the most recent year, which would shift the average significantly. Alternatively, a co-borrower with PAYG income would be assessed differently and could significantly increase total capacity.
The conversation changed from “why can’t I borrow $1.3 million” to “here is what my income needs to look like for the next 12 months to reach that target.” He deferred the purchase by 12 months, lodged the next return, and qualified comfortably.
**Key honest bit points:** i. Addback policies vary significantly by lender — what one lender accepts another will not. ii. Low-doc and alt-doc products exist for self-employed borrowers but typically carry LVR restrictions and rate premiums. iii. Restructuring your tax position for the purpose of borrowing is a strategy with compliance implications — discuss with your accountant before acting. iv. Industry-specific lender policies exist — some industries are viewed more favourably than others.
“What you earn and what a lender will count as income are often very different numbers.
What you're building
A self-employed borrowing capacity check outlining: tax return income averaging rules, business addback eligibility (depreciation, one-off expenses), structure-specific assessment guidelines (sole trader vs company director), and alt-doc product options.
Claude (free tier works), your net business profits for the last two financial years, business structure details, and potential addbacks like depreciation.
Copy the prompt.Paste your details.Analyze the output.
Paste the prompt below into Claude or ChatGPT. Replace the bracketed fields with your specific property or portfolio details.
Always verify the AI's assumptions with qualified professionals. This output is a first-pass educational tool, not advice.
Self-employed check
Self-employed borrowing capacity scanner · tax return averaging
You are an Australian property finance educator helping a self-employed borrower understand how Australian lenders will assess their income and what this means for their borrowing capacity. Self-employed income assessment is different to PAYG and varies significantly by lender. MY DETAILS: - Business structure: [sole trader / partnership / company (Pty Ltd) / trust / other] - Industry or type of business: [brief description] - Years in this business: [X years] - How I pay myself: [drawings from the business / director salary from the company / trust distributions / combination — describe] - Most recent tax return (most recent financial year) — net profit or taxable income: $[amount] - Prior year tax return (the year before) — net profit or taxable income: $[amount] - Year before that (if available): $[amount or not available] - Common addbacks I may have: [depreciation / motor vehicle expenses / home office / other — describe what expenses show in my returns that aren't actual cash costs] - Business-related debt: [business loan / equipment finance / ATO debt / other — describe and amounts] - My personal income outside the business: [rental income / dividends / other / none] - My available deposit: $[amount] - Target purchase price: $[amount] - Purpose: [owner-occupied / investment] - State: [NSW / VIC / QLD / SA / WA / TAS / ACT / NT] Return a self-employed borrower assessment with these 6 sections: ## 1. HOW LENDERS ASSESS MY INCOME Explain, for my specific business structure and income type: - The two-year average rule: most lenders require two years of self-employed income documentation and use the average of the two years, or the lower of the two years if income has declined - What 'income' means for my structure: for a sole trader it is net profit from the tax return; for a company director it may be salary plus dividends; for a trust it may be distributions — explain what applies to me - Addbacks: some lenders will add back certain non-cash expenses to increase assessed income. Common addbacks include depreciation, genuine one-off expenses, and home office. Note what addbacks might be available for my situation and that addback policies vary by lender. - Income trend: is my income trend increasing, flat, or decreasing? A declining income trend is a significant red flag for lenders. What should I expect if my income declined between years? - Low doc or alt doc products: explain these options for self-employed borrowers, when they might be appropriate, their typical LVR restrictions, and rate premium implications. ## 2. MY ASSESSED INCOME ESTIMATE Based on the figures I have provided: - Standard assessment: average of the two years I provided = $X - If my most recent year is lower: many lenders use the lower year. What does this produce? - Potential addbacks: if I have disclosed addbacks, estimate the impact on assessed income (noting this is lender-specific and not guaranteed) - What this implies for borrowing capacity: at this assessed income and with the serviceability buffer applied, estimated borrowing capacity signal = $X to $X range - How this compares to my target purchase price: am I in the right range? - Flag: these are estimates only. A specialist mortgage broker who knows which lenders are most generous for my income structure and industry is essential. ## 3. WHAT DOCUMENTATION I NEED TO PREPARE Generate a checklist of the documents a lender is likely to require for a self-employed borrower in my structure. Be specific: - Personal income tax returns: how many years, what attachments - Business tax returns: how many years, what attachments - ATO notice of assessment: what it confirms and why lenders want it - Business activity statements (BAS): how many quarters, what they demonstrate - Accountant's letter: what it should contain and when it is required - Bank statements: personal and business, how many months, what lenders look for - Trust deed: if applicable, what sections lenders review - Company documents: if applicable, what is required ## 4. LENDER LANDSCAPE FOR MY SITUATION For a self-employed borrower with my profile, describe: - Which lenders are typically most accommodating for self-employed borrowers (general categories: major banks, second-tier lenders, specialist non-bank lenders) - How rate and policy differ across these lender categories for self-employed borrowers - What a specialist self-employed broker knows that a general broker might not - Any industry-specific considerations: some industries are viewed more favourably than others by lenders (stable professional service businesses vs highly cyclical industries) ## 5. WHAT I SHOULD DO BEFORE APPLYING The specific actions I should take in the 3–12 months before applying for a loan that could improve my assessed borrowing capacity: - Tax return timing: should I delay or accelerate lodgement to show a better income picture? - Addback optimisation: are there legitimate non-cash expense addbacks I should ensure my accountant clearly documents? - Business structure: are there structural changes that could improve income visibility? - BAS lodgement: are my BAS lodgements current and consistent? - ATO debt: if I have an ATO debt or payment arrangement, what do I need to resolve? - Note: any strategy involving tax timing should be reviewed with your accountant. Do not adjust your tax position for the sole purpose of borrowing — lenders are experienced at identifying this. ## 6. QUESTIONS TO ASK A SPECIALIST BROKER Generate 8 specific questions I should ask a specialist self-employed mortgage broker — not a generalist — before I proceed with any application. Focus on lender selection, income assessment, addbacks, and the realistic borrowing capacity for my specific structure and income history. --- Educational analysis only. Not financial, accounting, or credit advice. Self-employed income assessment is highly lender-specific and individual. Engage a specialist mortgage broker with experience in self-employed lending and a qualified accountant before making any property or finance decision.
A business owner came to me wanting to buy a $1.3 million property. His most recent year: $210,000 net profit. His prior year: $85,000 net profit. He had expected a capacity around $1.4 million. The two-year average told a different story.
The conversation changed from “why can’t I borrow $1.3 million” to “here is what my income needs to look like for the next 12 months to reach that target.” He deferred the purchase by 12 months, lodged the next return, and qualified comfortably. **Key honest bit points:** i. Addback policies vary significantly by lender — what one lender accepts another will not. ii. Low-doc and alt-doc products exist for self-employed borrowers but typically carry LVR restrictions and rate premiums. iii. Restructuring your tax position for the purpose of borrowing is a strategy with compliance implications — discuss with your accountant before acting. iv. Industry-specific lender policies exist — some industries are viewed more favourably than others.
Your first run is fine. Your fifth is sharp.
Verify addback assumptions
Add specific business expenses (like depreciation or one-off legal costs) to the prompt to test how different addbacks change your assessed income.
Test one-year vs two-year averaging
Compare your borrowing power under lenders that average two years of returns versus specialist lenders that accept the most recent year's tax return.
Re-run after your annual tax returns are lodged
Calibrate the prompt calculations immediately after lodging your latest financials with the ATO.
Save this self-employed check in your Claude Project. Work with your accountant to keep your borrowing profile up to date.
What it still gets wrong.
Addback policies vary significantly by lender — what one lender accepts another will not.
Low-doc and alt-doc products exist for self-employed borrowers but typically carry LVR restrictions and rate premiums.
Restructuring your tax position for the purpose of borrowing is a strategy with compliance implications — discuss with your accountant before acting.
Industry-specific lender policies exist — some industries are viewed more favourably than others.
How this stacks.
Day 12 maps business borrowing limits. Day 06 reality-checks PAYG borrowing margins. Day 29 prepares your broker pack. Run them to clear tax-structure questions.
Before you apply as a business owner.
You'll know exactly how a lender averages your income.
You'll understand how lenders average self-employed income and treat addbacks, so you can organise your financials and discuss the cleanest way to present them with your broker and accountant.
SMSF compliance
SMSF property purchase checklist · limited recourse borrowing arrangement
Read Day 13 ↗