How to Time Your Tax Returns for Stronger Home Loan Approval

If you’re self‑employed, a company director or investor, the timing of your tax returns can make or break your home loan approval.

Most Australian lenders rely on lodged tax returns to prove income and, once a new year’s return is due, many will insist on seeing it. That means a weaker new year can cut your borrowing power overnight, while a stronger year can boost it if you lodge early. With some planning around EOFY, you can choose whether to apply before or after lodging to maximise approval odds.

This guide explains how lenders think about timing, the common scenarios, and what you can do this week to line things up.

Getting your tax returns and loan strategy aligned early can boost approval odds.

1. Why tax return timing matters so much to lenders

Lenders use tax returns to answer one blunt question: can you afford this loan if rates rise or your income dips?

For PAYG employees, that’s usually straightforward – recent payslips and a group certificate or Income Statement. For self‑employed borrowers and directors, your personal and business tax returns become the primary evidence of income.

Key points:

1. Most lenders want two full years of returns for self‑employed applicants and directors before they’ll use your business income in serviceability calculations (Facts 8 and 12).
2. They then test your borrowing at an interest rate about 3 percentage points above your actual rate (Facts 2, 10 and 16), to build in a buffer if the RBA lifts rates further.
3. Once the latest year’s return is due, many lenders will either:
   • insist on the new return, or
   • proceed cautiously using interim figures (BAS/management accounts) or an alt‑doc policy, often with tighter terms.

That means timing your application around when you lodge can substantially change the income they use – and therefore your borrowing capacity.

For a deeper dive into how lenders read your numbers, see How Banks Read Your Business Financials Before a Home Loan.

2. How banks treat your “most recent” financial year

2.1 How many years of tax returns do banks want?

For self‑employed borrowers and company directors, most mainstream lenders expect:

• 2 years of personal tax returns
• 2 years of business financials (company, trust, partnership) and corresponding tax returns
• The most recent year must generally be no more than 18–24 months old at the time of assessment.

Some specialist and alt‑doc lenders will consider:

• 1 year of returns, or
• BAS statements and an accountant’s letter

…but usually at the cost of:

• higher interest rates, and/or
• lower maximum LVR (e.g. capped at 70–80%), and
• stricter property or postcode rules.

For a broader overview, see How to Use Tax Returns to Prove Income for Your Home Loan.

2.2 When will the bank insist on the latest year?

The crucial timing issue is when the latest tax year becomes unavoidable.

In practice, many lenders will:

• Prior to the new year’s lodgement due date (e.g. before your accountant’s extended deadline), allow an application using the last two lodged years.
• Once that due date has passed:
  • pause or decline an application until the latest return is lodged, or
  • treat you as non‑compliant and demand explanations.

This is especially true if:

• your business is leveraged
• you’re borrowing at a higher LVR, or
• your income trend looks unstable.

So if you’ve had a weaker recent year, applying before you lodge that return can sometimes preserve borrowing power – provided you’re still within ATO lodgement timelines and your numbers support it.

2.3 Rising vs falling income: why it matters

Lenders handle income trends differently:

• Where self‑employed income is rising, some lenders will use the most recent year only, while others average the last two years or use the lower year, which can materially change borrowing power (Fact 4).
• Where income is falling, many lenders either:
  • use the lower year, or
  • shade the latest year further, or
  • ask for explanations and more documents.

As a rough rule of thumb, many lenders become cautious when income drops more than about 20% year‑on‑year. That can prompt credit to:

• downgrade the income they’ll use, or
• ask for a stronger exit strategy and lower LVR.

Lenders look closely at year-on-year income trends when assessing borrowing power.

3. Four common timing scenarios – and what to do this week

Scenario 1: Last year was strong, this year is weaker

You had a bumper 2023–24 year, but 2024–25 has been tougher – maybe a lull in work, parental leave, or you deliberately wound back hours.

Risk: Once your weaker 2024–25 return is lodged (or the due date passes), lenders may switch to using that year or averaging down your income.

This week’s action plan:

• Confirm your lodgement deadlines with your tax agent – especially if you rely on their extended ATO due dates.
• Pull your 2023–24 and 2022–23 returns and financials so a broker can model borrowing power using those years only.
• Ask your broker whether your preferred lenders are still comfortable assessing on those two years without the 2024–25 return.
• If the numbers stack up and you’re ready to buy or refinance, seriously consider applying before you lodge the weaker return, while staying within ATO timelines.

Scenario 2: This year is your strongest ever

Your latest financial year is your best yet – higher turnover, better margin, cleaner books.

Opportunity: Lodging early can allow lenders to use your strongest income sooner, significantly boosting borrowing power.

This week’s action plan:

• Get draft accounts from your accountant as soon as possible after 30 June.
• Ask them to flag any big, one‑off deductions or write‑offs and how these appear in the tax return.
• Discuss with your broker whether to:
  • lodge early and apply once the new return is available, or
  • use an alt‑doc lender with BAS/management accounts if you need to move before the return is final (accepting possible higher rates or lower LVRs).

Scenario 3: Big deductions or asset write‑offs this year

You’ve invested in vehicles, equipment or fit‑out and claimed temporary full expensing or large depreciation. Great for tax, but it may shrink taxable profit on paper.

Some lenders will treat significant, clearly documented asset purchases as add‑backs when assessing income. Others will simply use taxable income as reported.

This week’s action plan:

• Ask your accountant for a reconciliation showing add‑backs – interest, non‑recurring expenses, discretionary super, and asset write‑offs.
• Work with your broker to select lenders who recognise add‑backs and understand small‑business realities. Our article How Banks Really Judge Your Small Business At Home Loan Time explains this in more detail.
• Decide whether to lodge now (and rely on add‑backs) or, if you’re not ready to borrow, whether to dial back aggressive deductions next year if you plan a big purchase.

Scenario 4: Overdue returns or ATO debts

Overdue returns and tax debts are bright red flags to credit teams.

• Overdue lodgements suggest poor financial control.
• ATO debts without a formal payment plan are often treated like unpaid defaults.

This week’s action plan:

• Prioritise getting all outstanding returns lodged, even if that means showing lower income than you’d like.
• If you owe the ATO, negotiate a formal payment plan – lenders generally view this more favourably than an unmanaged tax debt.
• Expect some lenders to want three to six months of clean ATO payments before they’re comfortable approving a loan.

In all four scenarios, the key is the order of events: talk to your broker and tax adviser before you lodge, not after.

4. How timing changes borrowing power: worked examples

Let’s look at how different timing and assessment methods can change your borrowing.

Assume:

• Couple applying for an owner‑occupied loan
• Minimal other debts
• Assessment rate: actual 6% P&I but tested at 9% with a 3% buffer
• Term: 30 years

Example 1: Rising income

Self‑employed borrower:

• 2022–23 taxable income: $120,000
• 2023–24 taxable income: $160,000

Approximate income used under different policies:

*Illustrative only; real outcomes depend on full living expenses, debts and policy.

Here, choosing a lender that uses the most recent year and lodging your strong return early could mean roughly $200,000 more borrowing capacity than a conservative lender that uses the lower year.

Example 2: Falling income

Now flip it:

• 2022–23 taxable income: $160,000
• 2023–24 taxable income: $120,000

If you apply before lodging 2023–24 and the lender is comfortable using the two existing years (2021–22 and 2022–23), they might assess income around $160,000.

If you lodge 2023–24 first and the lender then:

• uses the latest year only → income $120,000
• or averages → around $140,000

you could lose somewhere between $60,000–$200,000 of borrowing capacity, depending on the policy.

This is why the sequence of:

1. tax planning → 2) broker strategy → 3) lodgement → 4) loan application

matters far more than most people realise.

The sequence of planning, lodgement and application can significantly change outcomes.

5. Planning around EOFY if you want to buy in 6–18 months

EOFY is the perfect time to align tax strategy with your home loan goals.

5.1 For self‑employed and company directors

Many business owners aim to minimise taxable income. That’s understandable, but it can backfire when you want to borrow.

Over‑aggressive tax minimisation in the 1–2 years before a purchase can:

• reduce your provable income
• push you below lender thresholds
• make you look more volatile than you really are.

If you’re planning a major purchase or refinance in the next 6–18 months, consider:

• Balancing tax savings vs borrowing power. A slightly higher tax bill in one year might unlock the home you actually want.
• Cleaning up your structure. Simplify inter‑entity loans, director’s drawings and personal expenses through the business so lenders can see the real profit. The article Home loans for high‑income self‑employed professionals and owners walks through this.
• Stabilising income. Lenders get nervous with large swings; aim for a clear, explainable pattern.

5.2 For PAYG with a side hustle

If you’re PAYG but run a side business:

• Make sure all returns are lodged on time – lenders will still look at the business activity.
• Be careful about claiming large losses from the side hustle if you need maximum borrowing. Some lenders will deduct those losses from your PAYG income.
• Keep business accounts separate and tidy – it reassures credit that your side hustle isn’t a hidden risk.

5.3 For investors and small businesses

Property investors and small business owners often have multiple moving pieces:

• rental income and negative gearing
• business profits and retained earnings
• trust distributions

EOFY planning should look at the whole picture, not just your tax position. That includes:

• projected rental income and expenses
• upcoming capital expenses or renovations
• your target loan size and LVR bands (e.g. aiming to stay ≤80% to avoid LMI).

At the same time, the latest Roy Morgan data shows around 28% of mortgage holders are now ‘At Risk’ of mortgage stress, with more at risk if rates continue to rise. That’s a reminder not to chase the maximum theoretical borrowing just because your numbers allow it.

6. Coordinating your tax agent, accountant and broker

The best outcomes happen when your tax, business strategy and borrowing plan are designed together.

6.1 Why “joined‑up” advice matters

Without coordination, you can easily end up with:

• a tax return optimised for minimum tax, but
• a credit profile that’s too weak for the loan you want.

A joined‑up approach means:

1. Your accountant knows your property and borrowing goals and can model scenarios.
2. Your broker translates those scenarios into lender language – what income they’ll actually use, which expenses are add‑backs, how they’ll view fluctuations.
3. You choose a lodgement and application sequence that best balances tax, cash flow and approval odds.

6.2 A one‑week timing game plan

Here’s how a busy professional or business owner can get decision‑ready in a week:

Day 1–2: Gather and clarify

• Collect your last two years of personal and business tax returns and financials.
• Export current‑year P&L and balance sheet from your accounting system.
• List any large, unusual items (asset purchases, one‑off expenses, COVID support, etc.).

Day 3–4: Strategy with your adviser team

• Talk to your tax agent/accountant about draft results for the current year and your lodgement deadlines.
• Ask them to prepare a simple add‑back schedule.
• Sit down with a broker who can model:
  • borrowing power using the last two lodged years, and
  • potential borrowing power using draft current‑year numbers.

Day 5–7: Decide and act

• Choose whether to apply before or after lodging the latest return.
• If applying before, get your application, supporting docs and explanations ready.
• If applying after, agree on when to lodge and which lenders are likely to view your new year most favourably.

For help managing the process itself, see Why Using a Mortgage Broker Saves Time, Stress and Money.

7. Red flags that quietly sink otherwise good applications

Even with good income, these timing‑related issues can derail an approval:

7.1 Overdue or inconsistent lodgements

• One or more overdue returns
• Big gaps between BAS results and final lodged figures
• Frequent amendments without clear explanations

Lenders read this as: “If they can’t keep lodgements current, can they manage a large mortgage?”

7.2 Unmanaged ATO debts

• Significant ATO debt without a formal payment plan
• A pattern of falling behind on ATO obligations

Most lenders treat active ATO payment plans similarly to other term debts when calculating serviceability. Unmanaged debt, by contrast, can be a deal‑breaker.

7.3 Sharp income drops without a story

A year‑on‑year income drop of more than ~20% with no explanation will usually trigger:

• questions from credit
• a more conservative income assessment
• sometimes a request to wait for another year’s figures.

Being upfront, with documentation, helps – for example, explaining a planned sabbatical, a one‑off contract ending, or a temporary health issue.

FAQs: Timing tax and home loan applications

1. Should I delay lodging my tax return to get a home loan approved?

Sometimes it can help to apply using two stronger lodged years before a weaker new year is filed, but only if you are still within ATO deadlines and your numbers support the loan safely. Deliberately delaying lodgement beyond due dates usually backfires, because lenders see overdue returns as a compliance issue and may insist on the latest year anyway.

2. Can I get a home loan if my latest year’s income is lower?

Yes, but expect more questions and sometimes reduced borrowing power. Many lenders will either use the lower year, average down your income, or ask for extra evidence the drop is temporary. This is where lender choice, strong supporting documents and a clear explanation become critical.

3. Do banks accept draft financials or BAS instead of a lodged return?

Some lenders offer alt‑doc options using BAS, accountant letters or interim management accounts, but usually at slightly higher rates or lower maximum LVRs. They can be useful when your current year is much stronger and you haven’t lodged yet, but you still need to show that your tax affairs are on track and there are no large undisclosed ATO debts.

4. How does an ATO payment plan affect my borrowing power?

Most lenders treat a formal ATO payment plan like any other term debt and include the monthly payment in your serviceability assessment. That can reduce borrowing power slightly, but it is generally far better than having an unmanaged tax debt, which many lenders view as a serious credit concern.

5. What if I want to buy in 12–18 months – when should I talk to a broker?

Ideally before you and your accountant finalise the next tax return. That gives you time to balance tax planning and borrowing capacity, choose which year you want lenders to focus on, and tidy up any red flags like high credit card limits or messy business expenses. A 30–60 minute strategy chat now can save you a full year of waiting later.

Key takeaways

• Lenders usually want two years of lodged returns for self‑employed borrowers and will often insist on the most recent year once it’s due.
• Applying before lodging a weaker new year, or after lodging a stronger year early, can shift borrowing power by hundreds of thousands of dollars.
• Overdue returns and unmanaged ATO debts are major red flags, even when headline income looks strong.
• EOFY is the right time to align tax planning and borrowing goals, especially if you want to buy or refinance in the next 6–18 months.
• The best outcomes come when your tax adviser and broker coordinate the order of planning, lodgement and application.

If you’re unsure whether to apply now or wait until after your next return, we can model both paths for you. Your tax, your loan, one expert – a CPA, Tax Agent and Mortgage Broker in a single consultation. Book a free 15‑minute strategy call at https://localknowledge.finance/book or use our borrowing power calculator at https://localknowledge.finance/tools/borrowing-power-calculator to get a quick sense of your numbers.

General advice only.