Self-employed
Can retained company profits count toward borrowing capacity?
When a lender may look beyond salary and dividends to profit retained inside a company.
Short answer
Yes, some lenders can include a business owner's share of retained company profit, but it is not automatic. You generally need sufficient control of the company, reliable financials and evidence that using the profit will not weaken working capital or the business.
What the lender tests
The assessor may start with net profit, adjust for tax and accepted add-backs, then apply your ownership percentage. Salary or dividends already counted must be removed to avoid counting the same income twice.
- Your shareholding and control of distributions.
- Whether profit is recurring rather than exceptional.
- Cash, liabilities and working-capital requirements.
- Other shareholders and restrictions on accessing funds.
Why a profitable company can still be excluded
Accounting profit is not always cash available to a borrower. Funds may be needed for stock, tax, debt repayments or growth. Some lenders therefore use only income actually paid to you, while others assess the wider company position.
Control and access are central
A lender is more likely to consider retained profit when the borrower owns and controls enough of the company to influence distributions. A minority shareholder may have no practical ability to access the money. Shareholder agreements, other directors and different share classes can also matter. Even with full ownership, the company remains a separate legal entity. The assessment is about sustainable income available to support the household, not simply treating the company bank balance as personal cash.
How double counting is avoided
Assume a company earns $200,000 before paying the owner a $100,000 salary. The assessor cannot simply add both figures if the profit is stated before that salary expense. The starting point, tax adjustment, salary, dividends and ownership share must be reconciled. Existing business loan repayments and other commitments may also reduce the amount available. A correct calculation follows the flow of money through the financial statements rather than adding every visible income line together.
Documents that support the case
The lender may request company tax returns, financial statements, personal returns, notices of assessment, current management accounts and business bank statements. An accountant's explanation may help where profit was retained for a specific one-off reason or where trading changed after year end. It does not replace the lender's assessment. Strong retained-profit applications normally show reliable earnings, sensible liquidity and enough working capital remaining after the proposed personal borrowing is considered.
Questions to ask before you proceed
- Which financial years and income method will this lender use for my structure?
- How will add-backs, retained profit, tax debt and business facilities be treated?
- Which current documents will support changes since the last completed financial year?
Key takeaway
Retained profit can help, but only when the lender accepts it and the business can safely support the assessment.
Official guidance: APRA: Residential mortgage lending guidance
This is general information, not personal financial, tax or legal advice. Lending criteria, fees and eligibility vary.
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