This is one of the most common questions self-employed borrowers ask us: should they use their tax returns or their BAS statements to apply for a home loan? The answer depends entirely on which produces a higher income figure for your specific situation — and that requires understanding how each document is assessed.
The Core Issue
Tax minimisation is smart accounting but brutal for home loan applications. Legitimate deductions — depreciation, vehicle, equipment, home office — reduce your taxable income significantly below your actual cash earnings. BAS statements bypass this problem by showing revenue, not profit. The tradeoff is a slightly higher interest rate. Understanding this tradeoff is the key to choosing the right approach. For full background, see our self-employed home loan guide for Sydney.
The Core Difference
What Lenders See
- Net taxable income after all deductions
- 2 years required (average of both years used)
- Add-backs may be applied (depreciation, one-off expenses)
- Must be lodged with the ATO
- Lower income figure if aggressive tax minimisation used
What Lenders See
- GST turnover (revenue before expenses)
- 12 months of BAS (4 quarters) required
- Lender applies a gross income factor (60–80% of GST turnover)
- Shows current trading, not historical
- Higher interest rate (0.3–0.8% premium)
How Lenders Calculate Income from BAS
When you submit BAS statements, the lender doesn't simply take your GST turnover as income. They apply an income factor — typically 60–80% — to estimate your net income after expenses. For example:
- Annual GST turnover from BAS: $200,000
- Lender applies 70% income factor: $140,000 assessed income
- Compared to tax return showing: $95,000 taxable income
In this scenario, using BAS gives you a $45,000 higher assessed income — significantly improving your borrowing power. Use the borrowing calculator to compare what each income figure yields in loan capacity before deciding which path to take.
The Income Factor Problem
The 60–80% income factor is the catch with BAS lending. Different lenders apply different factors — and this directly impacts how much you can borrow. A lender applying 75% gives you meaningfully more borrowing capacity than one applying 60% on the same BAS.
Not All BAS Lenders Are Equal
The income factor varies from 60% to 80% across different lenders. This is a major reason to use a broker who knows each lender's specific policy rather than applying directly. A 20% difference in income factor on a $250K turnover is $50,000 in assessed income — the difference between being approved and declined. For a full breakdown of how banks calculate self-employed income, see our guide on bank income assessment methods.
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Lender Income Factor Comparison
| Lender Type | BAS Income Factor | Rate Premium | Min BAS Period |
|---|---|---|---|
| Major Banks (ANZ, NAB) | Not available | — | Tax returns only |
| Liberty Financial | 75–80% | +0.3–0.5% | 4 quarters |
| Pepper Money | 70–75% | +0.4–0.6% | 4 quarters |
| La Trobe Financial | 65–70% | +0.5–0.7% | 4 quarters |
| Resimac / Bluestone | 60–70% | +0.5–0.8% | 4 quarters |
Indicative figures. Lender policies change — always verify with a broker before applying.
When to Choose Each Option
Use Tax Returns When:
- Your net taxable income is above $120K and reflects your true earnings
- Your business is growing and the average of 2 years doesn't penalise you
- You want access to major bank rates and products
- You have 2+ years of lodged tax returns ready to go
Use BAS When:
- Your tax returns show significantly lower income than your actual turnover
- You have fewer than 2 years of tax returns lodged (new business)
- You have one bad year in your tax history pulling the 2-year average down
- Your business is growing fast and last year's returns understate where you are now
The Strategy: BAS Now, Refinance Later
For many self-employed borrowers, the right move is to get approved on BAS today, accept the slightly higher rate, then refinance to a full doc product in 12–24 months once you have current tax returns lodged that reflect your actual income.
This is a well-understood path in the broker community. The key is making sure the initial loan has no excessive exit costs and that the structure is right from day one. We plan this refinance path at the start — not as an afterthought. For a detailed breakdown of the alt doc vs low doc landscape, see our low doc vs alt doc comparison guide.
Which Option Gives You More Borrowing Power?
We'll run the numbers on both approaches for your specific situation — free, no obligation.
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