Self-employed borrowers face a tougher lending environment in 2026 than salaried employees, but from 1 July 2026 there is a significant tax advantage: the $20,000 instant asset write-off is now permanent, allowing small businesses to immediately deduct assets up to $20,000 per item. This article covers how to qualify for a home loan as a sole trader, company director, or partnership member in 2026-27, what documentation you need, and how the tax changes affect your borrowing power.
The $20,000 Instant Asset Write-Off: Permanent from 1 July 2026
The Federal Budget 2026-27 (12 May 2026) announced that the $20,000 instant asset write-off is becoming a permanent measure from 1 July 2026. This was previously a series of temporary extensions. The legislation is not yet passed but the announcement is clear.
Key details:
- Threshold: $20,000 per asset
- Eligible businesses: Small businesses with aggregated turnover less than $10 million
- Multiple assets can be written off in the same year
- Per-asset basis — not a total cap
- Assets costing $20,000 or more can use the simplified depreciation pool (15% first year, 30% subsequent years)
- Pool balances under $20,000 at year-end can be fully written off
- The 5-year re-entry restriction on the simplified depreciation regime is suspended until 30 June 2027
How this helps with a home loan: Writing off business assets reduces your taxable income. But lenders assess borrowing capacity based on your actual income — not the reduced taxable figure after deductions. Some lenders use an add-back approach where business expenses that are non-recurring or non-cash (like depreciation and instant asset write-offs) are added back to your taxable income to calculate your true borrowing capacity.
Strategic Tip for Loan Applications
If you plan to apply for a home loan in 2026-27, consider the timing of asset write-offs. Writing off $20,000 in assets reduces your taxable income by $20,000 in that financial year — which reduces the income figure on your notice of assessment and tax return that lenders will look at. If your borrowing capacity is borderline, deferring non-essential asset purchases until after loan approval preserves your income for serviceability purposes. Once the loan is approved, the permanent write-off is available every year — you can catch up later.
Low-Doc and Alt-Doc Loans: What Self-Employed Borrowers Use
Traditional full-doc loans require two years of tax returns and notice of assessments, plus current BAS statements or accountant letters. Many self-employed borrowers use low-documentation (low-doc) or alternative-documentation (alt-doc) loans instead.
Low-Doc Loans
Low-doc loans accept alternative income verification, typically:
- BAS statements (6 to 12 months)
- Business bank account statements (6 to 12 months)
- Accountant's letter confirming income
- Business Activity Statements showing GST turnover
The trade-off is typically a higher interest rate — approximately 0.5% to 1.5% above comparable full-doc rates — and a higher deposit requirement, often 20% to 30% of the property value.
Alt-Doc Loans
Alt-doc loans sit between full-doc and low-doc, accepting one year of tax returns plus supporting documents rather than the standard two years. Rates are generally closer to full-doc pricing if your financials are clean and your income is stable or growing.
Full-Doc Requirements for the Self-Employed
If you have been trading for more than two years and your income is consistent or growing, full-doc is the cheapest path:
- Two years of personal tax returns and ATO notice of assessments
- Two years of company or trust tax returns and financials (if trading through a structure)
- ATO tax portal printout or tax agent portal summary (confirming no outstanding tax debt)
- Current BAS statements (last quarter)
- Accountant's letter confirming income, business structure, and ABN
- Trading history typically minimum two years (some lenders accept one year in specific circumstances)
Company Tax Rates and Structures
If you operate through a company, the standard company tax rate is 30%. Base rate entities (aggregated turnover under $10 million) pay 25%. Dividends distributed to you as a shareholder are franked and included in your personal taxable income alongside the grossed-up franking credit.
Lenders assess company profits that flow to you as personal income. If you leave profits inside the company rather than distributing them, lenders cannot include retained profits in your personal income assessment — you need to show actual distributions on your personal tax returns.
The 3% Serviceability Buffer: What It Means for the Self-Employed
APRA's 3% serviceability buffer applies to all borrowers, employed and self-employed alike. Lenders assess your ability to service the loan at approximately 9.2% to 9.5% (current rates of 6.2% to 6.5% plus the 3% buffer). For self-employed borrowers with fluctuating income, lenders take a cautious approach:
- If your income has been declining, lenders may use the most recent year's figure
- If your income has been increasing, lenders may average the last two years
- One-off or lumpy income (large contracts, project-based revenue) is discounted
- Business expenses that reduce your taxable income but are not actual cash outflows (depreciation, asset write-offs, super contributions) may be partially or fully added back by some lenders
ABN Requirements
A valid ABN registered for GST is a baseline requirement. Most lenders also require:
- ABN held for minimum 2 years (some accept 1 year)
- GST registration and current BAS lodgements
- Business name registration matched to ABN
- Clean credit file for both the business entity and the individual
Sole traders using their personal name and TFN without a separate ABN or business name can apply as PAYG-type borrowers if their income is regular and documented, but at least one year of trading history through the ABN system is typically required.
FAQ
Can I use the $20,000 instant asset write-off to reduce my tax and still qualify for a home loan? Yes, but it reduces the taxable income figure on your tax return that lenders will see. Some lenders add back depreciation and write-off expenses when calculating your borrowing capacity, but not all. Ask your broker about lender policies on add-backs.
How long does my ABN need to be active to get a home loan? Most lenders require a minimum of 2 years of ABN trading history for full-doc loans. Low-doc and alt-doc lenders may accept 1 year with strong BAS lodgement history and bank statements.
Is it harder for self-employed borrowers to get a loan at 4.35% cash rate? Yes, in two ways. First, the base interest rate is higher, reducing borrowing capacity for everyone. Second, the 3% serviceability buffer magnifies the effect on self-employed borrowers who typically show lower taxable income due to legitimate business deductions. A clean set of financials and engagement with a broker who specialises in self-employed lending is essential.
Do lenders look at my gross business turnover or my personal taxable income? They look at your personal taxable income — the figure that appears on your individual tax return and notice of assessment. Business turnover through a company or trust only helps to the extent that income is distributed to you personally and reflected on your personal tax return. Retained profits inside a company are generally not included unless the lender has a specific policy for closely-held companies.
What if I have only been trading for one year? Some lenders accept one year of tax returns under alt-doc or specialist self-employed products, generally with a higher deposit requirement (20% to 30%) and slightly higher interest rates. Two years is standard for the best rates and terms.