How professional practice owners can structure income to borrow more

Most practice owners think the bank cares how profitable their business is. It doesn’t – it cares how much of that profit reliably lands in your personal tax return and how it’s structured.

For doctors, lawyers, accountants, engineers and consultants running practices, structuring income for borrowing power means turning drawings, dividends and profit share into a story that survives a credit assessor’s spreadsheet. Your business might be thriving, but if your returns show low taxable income or erratic distributions, your borrowing capacity can fall by 20–40%.

Here’s the core idea in one paragraph: Australian lenders assess self‑employed and professional borrowers using lodged tax returns, business financials and bank statements, not the “real” cash you feel in the practice. They typically average the last two years’ income or take the lower year if income falls (often by 20% or more), then shade variable income and apply a 3% APRA serviceability buffer. If you want more borrowing power, you need to deliberately shape what shows up on those returns 6–24 months before you apply.

I’ll walk through what that looks like in practice – using examples from medical, legal and consulting practices – and what you can genuinely act on this week.

How your income flows through entities determines how banks see your borrowing power.

How banks actually see your practice income

Drawings, salary and dividends: three labels, one pool

The mistake I see most is assuming banks will just look at practice turnover and trust that “there’s plenty there”. They won’t.

For company, trust and partnership structures, most lenders start from your personal taxable income, then reconcile that back to the business:

• PAYG salary from your practice company
• Director fees
• Partnership distributions
• Dividends
• Trust distributions

Then they check the business tax returns to see your share of net profit and whether profits are being retained.

As I explain in /insights/using-tax-returns-to-prove-income-home-loan, this is where the numbers often break: you might be drawing $450,000 from the practice, but only declaring $260,000 taxable income after aggressive deductions and retained profits. Lenders lend off the $260,000, not what you “could” take.

Partners and principals are usually treated as self‑employed

Even if you get a payslip from the partnership or service trust, once you’re a partner/principal, you’re assessed as self‑employed. Lenders focus on your share of profit from the practice financials, not just drawings.

So for a GP partner, law firm principal or senior consulting partner, the key inputs are usually:

• Your share of net profit before tax (after partner salaries but before distributions)
• Plus allowable add‑backs (e.g. depreciation, one‑off expenses)
• Minus your share of any business debt repayments

Understanding this formula is crucial before you play with salary vs drawings vs dividends.

The four big levers you can pull – and when

What I tell my clients is simple: don’t change your structure for the bank; change the flow and visibility of income within your existing structure.

There are four main levers.

1. Lift and stabilise taxable income (before you need the loan)

From /insights/low-tax-vs-high-borrowing-power-business-owners, we know there’s a direct trade‑off: lower taxable income usually means lower borrowing capacity.

Many lenders will:

• Average the last two years’ income, or
• Use the lower year if the latest year has fallen by around 20% or more.

If your taxable income bounced from $280k to $420k to $310k, a conservative lender may assess you around $310–345k, then shade variable components.

Worked example – doctor practice owner

• Year 1 taxable income: $280,000
• Year 2 taxable income: $420,000 (after lifting salary and trimming deductions)

Lender A (averaging): assess at $350,000.

Lender B (latest year only where income rising): assess at $420,000.

At a 6.5% actual rate, tested at 9.5% with a 30‑year P&I term, that difference can easily mean $250,000+ extra borrowing power.

What you can do this year

• Decide your next 1–2 major lending events (buy home, upgrade, investment purchase, refinance).
• For the two tax years leading into that: target a higher, more stable taxable income, even if that means paying more tax.
• Park “wish‑list” deductions for later, and document add‑backs clearly so we can present them to lenders.

2. Salary vs drawings for doctors, lawyers and consultants

For many incorporated practices, you have a choice: take more as PAYG salary or more as drawings/dividends.

Most mainstream lenders don’t care which bucket it’s in as long as:

1. It’s taxable income to you, and
2. It looks regular and sustainable.

But structure still matters at the margin.

Why a stable salary helps

• A consistent, documented PAYG salary with super often gets treated more like “standard employment income”, with less shading.
• Big, lumpy dividends or drawings may be averaged and discounted, especially if they fluctuate.

Example – GP in a service company

• Option A: $180k PAYG salary + $220k varying dividends ($120k–$260k year to year).
• Option B: $260k PAYG salary + $140k more stable dividends.

Same total $400k cash, but Option B looks cleaner. A conservative lender might:

• Take the $260k salary at 100%, and
• Average the dividends over 2 years, then shade by 20%.

We often see $100k+ difference in assessed income just from that change.

What you can do this week

• Talk with your accountant about setting a target base salary for the next 2–3 years.
• Aim for a salary that would still be supportable if practice profit dipped 20–30%.
• Keep dividends/distributions regular rather than lumpy where possible.

For a deeper dive into this trade‑off, see /insights/home-loans-high-income-self-employed-professionals.

3. Managing retained profits and timing of distributions

Retaining profits in your company or partnership can be great asset protection and tax planning. But from a lender’s perspective, undistributed profit isn’t personal income.

Most lenders will:

• Start with your personal taxable income
• Then potentially add back your share of retained profit, if:
  • You clearly control access to it
  • The business has a strong balance sheet
  • They’re a more flexible credit policy lender

Others will ignore retained profits altogether.

Practical implication

If you plan to:

• Buy a $3m home in 18 months, or
• Refinance $2m+ to release equity for investment

…then deliberately retaining large profits while paying yourself a low personal income can backfire.

Tactical approach

• 2–3 years out: retain more profit if that’s your strategy.
• 1–2 years out from a big lending move: plan with your accountant to distribute more profit into your name, accepting some extra tax to gain significantly more borrowing power.

4. Cleaning up add‑backs and “noise” expenses

Self‑employed and professional borrowers can often add back non‑cash or one‑off items to boost assessed income – but only if those items are transparent and well documented.

Common add‑backs I use with clients:

• Depreciation and amortisation
• One‑off legal/business setup costs
• Interest on debts being refinanced or closed
• Genuine once‑off repairs or COVID‑era support anomalies

As noted in our guide on specialist support for professionals, clearly documented add‑backs can make a material difference to serviceability.

What you can do

• Work with your accountant to tag one‑offs in the accounts (e.g. separate GL codes).
• Prepare a simple add‑backs schedule summarising the item, amount and why it’s non‑recurring.
• Avoid running clearly personal lifestyle expenses through the practice – lenders are getting much more forensic, especially on larger loans.

Adjusting salary, drawings and dividends can materially shift your borrowing capacity.

Locums, contractors and multi‑entity professionals

If your work pattern looks more like locum shifts, contract placements or project‑based consulting, your income story needs extra care. I cover this in more depth in our sibling piece on locums and contractors, but a few rules still apply here.

Multiple ABNs and entities

Where you:

• Have a personal ABN
• Contract through a company or trust
• Receive income from a partnership or service entity

…most lenders will want two years’ tax returns for each relevant entity. Some will shade income from certain structures more heavily.

In practice, that means:

• Simplifying structures where possible (without undoing asset protection)
• Making sure each entity’s purpose is clear – service trust vs trading vs investment
• Minimising unexplained inter‑entity loans and messy related‑party transactions

Irregular income still needs to look sustainable

Locum income, for example, is often strong but lumpy. Lenders commonly:

• Average the last two financial years, and
• Shade by 20–30% for volatility.

Your job is to:

• Show a long enough track record (ideally 2+ years in the same field)
• Provide 12–24 months of bank statements showing consistent inflows
• Explain any gaps (e.g. parental leave, study, sabbaticals) upfront

Our article on going from self‑employed to homeowner without payslips – /insights/self-employed-to-homeowner-without-payslip – has a practical checklist you can start on this week.

Balancing tax, lifestyle and borrowing power

All of this sits inside a bigger planning question: how much tax are you genuinely willing to pay now to unlock borrowing power for the next 5–10 years?

The wrong approach is to:

• Minimise tax aggressively every year, then
• Expect the bank to ignore your tax returns because “that’s not my real income”.

They won’t.

A practical decision framework

When I sit down with a professional client, we usually map:

1. Desired property moves over the next 5+ years – home upgrades, investment purchases, equity release.
2. Entity map – company, trust, partnership, SMSF, personal.
3. Target taxable income bands by year – aligning high‑income years with planned borrowing.
4. Risk buffers – stress‑testing your position if drawings drop 30–50% while rates rise 2–3% (a simple, brutal but effective test from our rent‑vs‑buy work).

Then we coordinate with your accountant so tax and lending work together, not against each other. This is especially important given the proposed CGT and negative gearing changes from 2027: future tax breaks on investment property may be less generous, so relying on “tax to sort it out later” is risky.

What you can actually do this week

If you’re a busy practice owner, here’s a one‑week plan that fits around clinics, court or client work.

Day 1–2: Get your numbers in one place

• Last two years’ personal tax returns
• Last two years’ business/partnership/trust returns
• Latest BAS and management accounts
• Current home, investment and business loan statements

Day 3–4: Sketch your income story

• For each year, write down:
  • Salary
  • Drawings
  • Dividends/distributions
  • Retained profits
• Note any big swings (20%+ up or down) and why.

Day 5–6: Rough‑cut borrowing scenarios

• Use online calculators cautiously; as we explain in our piece on borrowing capacity for small business owners, generic tools can be 20–40% off for self‑employed clients.
• Better: sit with a broker who can run three scenarios:
  1. Current structure
  2. Higher base salary + stable dividends
  3. Higher distributions with add‑backs

Day 7: Align with your accountant

• Take those scenarios to your accountant.
• Agree a 2‑year income and distribution plan that balances tax, lending and lifestyle.
• Lock in key moves: salary level, expected distributions, any structural simplifications.

Then, revisit annually – especially as your practice scales or regulations shift.

FAQs

How many years of income do I need as a practice owner?

Most lenders want two full years of tax returns for both you and your main business entities. Some will consider one year of strong, stable income if you have a longer track record in the same profession. Where income is rising, some lenders use the most recent year only, while others average or default to the lower year if there’s a decline of around 20% or more.

Is it better to pay myself a big salary or dividends for borrowing power?

For most mainstream lenders, a stable PAYG salary tends to be treated more favourably than lumpy dividends or drawings. The ideal mix is a sustainable base salary with regular, predictable dividends rather than large, irregular distributions. The total taxable income matters most, but how “smooth” it looks across years can change your assessed capacity.

Will lenders count retained profits in my practice company?

Some will, many won’t. Conservative lenders focus purely on what’s been distributed and taxed in your name. Others may add back your share of retained profits if the business is clearly profitable, well capitalised and you control access to those funds. The treatment varies widely, so choosing the right lender and presenting the financials well is critical.

Can I restructure my income just before applying for a loan?

You can, but it’s rarely effective if done at the last minute. Lenders mainly rely on lodged tax returns, so changes made today may not show up for 12–18 months. The smarter approach is to plan income and distributions 1–2 years ahead of a major purchase or refinance so you have clean, lender‑friendly financials when you apply.

How does this differ if I’m a locum or contractor?

Locums and contractors are usually treated as self‑employed even if they receive PAYG income from agencies. Lenders typically average 2 years of income, shade variable earnings and look closely at your contract history and bank statements. Structuring multiple ABNs and entities so the income flow is clear, and showing a stable pattern of work, are both critical for turning irregular earnings into a strong lending case.

Key takeaways

• Banks lend against proven, taxable income and business financials, not what your practice could pay you.
• For doctors, lawyers and other professionals, a stable base salary plus regular distributions usually tests better than low salary and lumpy drawings.
• Plan income 1–2 years ahead of major lending moves: lift and stabilise taxable income, clean up add‑backs, and time distributions thoughtfully.
• Locums, contractors and multi‑entity professionals need a clear, consistent income story across returns and bank statements.

If you’d like decision‑grade numbers rather than rough rules of thumb, book a free 15‑minute strategy call at /contact. We’ll map your practice structure, model your borrowing capacity under different income setups and suggest a concrete two‑year plan – so your tax, your loan and your practice strategy all line up, with one CPA‑broker‑tax adviser in the room.

General advice only.