How Banks View Different Types of Income

PAYG Salary: The Simplest Income for a Lender to Understand

A regular PAYG salary is generally the most straightforward income for a lender to verify.

If you receive a consistent salary from an established employer, there is usually a clear paper trail:

• Employment information
• Payslips
• Year-to-date income
• Salary credits into your bank account
• Employment history

Because the income is relatively predictable, base salary is generally treated more favourably than variable income. But even here, the details matter.

A lender may look at whether you are:

APRA's guidance specifically says lenders should verify employment status and consider whether income is regular and sustainable.

So while a $200,000 salary is relatively straightforward, a person who started receiving that salary only recently may not necessarily be assessed in exactly the same way as someone who has earned it consistently for several years.

Casual Income: Consistency Becomes More Important

Casual employment introduces another question for a lender: How dependable are the hours?

Someone working casually might earn a substantial amount over a year, but their hours may vary from week to week. The lender therefore needs to determine whether the income represents a sustainable pattern rather than a particularly strong period.

Lenders may look for around 6–12 months of employment history, although the precise requirements can differ between lenders.

This means two people earning the same annual amount could be assessed differently if one receives a guaranteed salary and the other relies on variable casual hours.

The important question isn't whether casual income is "good" or "bad". It is whether there is sufficient evidence that the income is ongoing and reliable.

Overtime, Bonuses and Commissions: Income With a Question Mark

Variable income is where borrowing capacity can become particularly interesting.

Overtime, bonuses and commissions can make up a meaningful portion of a professional's annual earnings. But lenders generally recognise that variable income may not repeat at the same level every year.

APRA's guidance says prudent lenders should apply appropriate adjustments to variable income and notes that discounts of at least 20% on most non-salary income are prudent practice, although the actual treatment is determined by individual lender policies.

For example, suppose someone receives:

• Base salary: $150,000
• Bonus: $30,000
• Commission: $20,000

Their actual annual income is $200,000. But the lender may not use the full $50,000 of variable income in its serviceability calculation. It might:

• Average the income over multiple years
• Apply a percentage reduction
• Require evidence that the income is ongoing
• Use a lower historical year
• Or, depending on policy, exclude a component altogether

Self-Employed Income: The Payslip Is No Longer the Whole Story

Self-employed borrowers often have a more complicated income story.

An employee can generally point to a payslip and say, “This is what I earn.” A business owner may have:

The lender therefore needs to understand the underlying financial position rather than simply looking at money moving into a personal account.

APRA specifically notes that self-employed borrowers can be more difficult to assess because their income tends to be less certain, and expects prudent lenders to take reasonable steps to verify available income using documentation such as tax returns, Notices of Assessment, bank statements, business activity statements and accountant information.

Sole traders vs. Company directors

For a sole trader, historical performance becomes important. A single exceptionally strong year may not automatically translate into the same borrowing capacity as several years of consistent results.

Company structures can become more complex. A director might receive a salary while the company also generates profit. Depending on lender policy, a lender may consider director remuneration, business profit, ownership percentage, retained earnings, and allowable add-backs (like depreciation).

The key point: Business income needs to be understood in context. A business owner can have a high level of revenue but relatively modest assessable income.

Rental Income: Your Rent Is Not Usually Treated Like Salary

Rental income is another area where borrowers can overestimate their borrowing capacity.

If an investment property produces $800 a week in rent, that is approximately $41,600 a year in gross rental income.

It would be tempting to assume the lender simply adds $41,600 to household income. Generally, it doesn't work that way. Rental income can be affected by:

• Vacancy periods
• Property management fees
• Maintenance and strata
• Changes in market rent

APRA's guidance specifically says prudent lenders should allow for periods of non-occupancy and apply a minimum 20% haircut to expected rental income. A common industry treatment is recognising 80% of gross rent, while recognising that lender policies vary.

So: $41,600 gross rent does not necessarily mean $41,600 of assessable income.

This is particularly important for existing property owners considering another investment. The additional property creates rental income, but it also creates additional debt and expenses. The lender is assessing the overall effect on serviceability.

Government Payments: Stability and Duration Matter

Government payments are another example of why “income” does not automatically equal “assessable income”.

The treatment can depend on what the payment is, whether it is ongoing, how long it is expected to continue, the borrower's circumstances, and the lender's individual credit policy.

Permanent benefits such as the Age Pension and certain Disability Support Pension payments are potentially more acceptable, while temporary or transitional payments may receive different treatment.

The broader principle is straightforward: The longer and more reliably an income stream can be demonstrated, the easier it is for a lender to assess its sustainability.

Investment Income: Returns Aren't Always Treated as Guaranteed

Income from investments can include dividends, interest, trust distributions, and managed fund distributions.

Again, the lender is interested in sustainability. A large dividend received once does not necessarily demonstrate a permanent income stream. The lender may examine historical distributions and may require evidence that the underlying investment assets will remain in place.

If you own a share portfolio worth $500,000 and received a $25,000 dividend last year, the lender may want to understand whether that income is recurring and if the assets remain invested. Investment income can therefore contribute to borrowing capacity, but it shouldn't automatically be treated as equivalent to a guaranteed salary.

Trust Distributions and Other Complex Income

Trust income can become particularly complicated because the amount appearing in a person's tax return may not tell the entire story.

The lender may need to understand the trust structure, the borrower's entitlement, distribution history, underlying business or investment activity, and whether the income is genuinely available to the borrower.

This is another reason why complex income should be assessed based on the whole financial structure, rather than a single figure from a tax return.

Allowances and Child Support: The Details Matter

Some borrowers also receive income through allowances or child support.

Employment allowances may be recognised where they are regular and supported by employment documentation, although treatment can vary. Child support can also be accepted by some lenders, but may require evidence of a formal arrangement and a consistent payment history.

The pattern is consistent: The more unusual the income source, the more important its history, documentation and lender policy become.