Add Backs Explained: The Income Lenders Put Back On
The expenses your accountant worked hard to claim are often the ones a lender will hand straight back to you.
Home loan add backs are the mechanism that turns a modest taxable profit into a realistic borrowing figure. Almost every self employed borrower has heard of them vaguely. Very few know which ones their lender will actually accept.
Home loan add backs are non-cash or non-recurring expenses a lender adds back to your taxable income to assess borrowing capacity. Depreciation, additional superannuation, retained profit, one-off costs and refinanced interest are the common ones.
Not every lender accepts the same ones.
"Add backs are the difference between a client being told they can borrow four hundred thousand and being told six. Same business, same year, different lender reading the same page."
AMRINDER SINGH
Key Takeaways
Here is what home loan add backs are, which ones lenders commonly accept, which are contested, and how to evidence them so the assessor does not simply ignore them.
Home loan add backs are non-cash or non-recurring expenses a lender adds back to your taxable income to assess borrowing capacity. Depreciation, additional superannuation, retained profit, one-off costs and refinanced interest are the common ones.
What an Add Back Actually Is
Home loan add backs start from your tax return, which shows taxable income after every legitimate deduction your accountant could claim. That figure is designed to minimise tax, and it does its job well.
It is a poor description of what your business generates in cash, though, and lenders know that. Home loan add backs exist to correct for it.
The lender identifies expenses that either did not involve cash leaving the business, or will not happen again, and adds them back to the taxable figure before assessing your servicing.
The result is a number somewhere between your taxable income and your actual business earnings. Where it lands depends entirely on which add backs that particular lender recognises.
The Add Backs Lenders Commonly Accept
Some home loan add backs are close to universal and you can generally expect them to be applied.
Depreciation is the clearest. It reduces taxable income without any cash leaving the business, so nearly every lender adds it back in full.
Additional superannuation contributions beyond the compulsory rate are widely accepted, on the reasoning that they are discretionary and could be redirected to loan repayments.
Interest on debts being refinanced or paid out as part of the transaction is also commonly added back, since that expense disappears once the loan settles.
Non-recurring expenses qualify where you can evidence they were genuinely one-off. A single equipment purchase or a legal cost tied to a specific event usually qualifies. An expense that appears in both years usually does not.
FREQUENTLY ASKED QUESTIONS TO AI
What are add backs on a home loan application?
Home loan add backs are expenses a lender adds back to your taxable income because they did not involve cash leaving the business or will not recur. Depreciation, extra superannuation, retained company profit, genuine one-off costs and interest on refinanced debt are the usual categories, though acceptance varies between lenders.
Which add backs do lenders accept in Australia?
Depreciation and additional superannuation are close to universally accepted. Interest on debt being refinanced is widely accepted. Retained company profit, motor vehicle expenses and certain lease payments are accepted by some lenders and refused outright by others. That variation is exactly why lender selection matters so much for self employed borrowers.
Is depreciation added back to income for a home loan?
Yes, in almost all cases. Depreciation reduces taxable income without any cash leaving the business, so lenders add it back in full. It is the most reliable of the home loan add backs, and often the single largest adjustment on any business that carries significant plant, equipment or motor vehicles.
Can retained company profit be used as income?
By some lenders, yes. Profit retained inside a company rather than distributed can be added back, on the basis that it is available to you. Other lenders refuse it entirely. If you pay yourself a small salary and retain profit, this single policy difference can change your borrowing figure dramatically.
How do I prove an expense was a one-off?
Evidence is what decides it. An accountant’s letter confirming the nature of the expense carries real weight, as does an invoice tied to a specific event. The strongest proof is absence: an expense that appears in one year and not the other is far easier to have accepted as non-recurring.
How much can add backs increase my borrowing capacity?
It varies enormously with the business. A service business with few assets may see little change. A business with substantial depreciation, retained profit and discretionary superannuation can see assessable income rise significantly, and the borrowing figure moves up with it. Only a lender-by-lender comparison will give you the real answer.
The Contested Ones
Where lenders genuinely diverge on home loan add backs is the more arguable end of the home loan add backs list, and this is where a broker earns their place.
Retained company profit is the biggest. Some lenders add it back in full, some partially, and some not at all. For a business owner paying themselves a modest salary, this single policy choice can be worth hundreds of thousands in borrowing capacity.
Motor vehicle expenses are contested, since the private use portion is genuinely a personal benefit. Some lenders add back a proportion.
Lease payments on equipment sometimes qualify where the lease is ending, and rarely where it is ongoing.
Amortisation of goodwill and certain provisions occasionally qualify with a strong accountant’s letter, though they are far from routine.
How to Evidence Them Properly
Home loan add backs an assessor cannot verify simply get ignored, and that is the most common way borrowing capacity is quietly lost.
Your accountant’s letter is the strongest single document. It should identify each expense, state the amount, and explain why it is non-cash or non-recurring in plain terms.
Depreciation schedules should be supplied rather than summarised, and one-off costs should be tied to invoices where possible.
Submit all of this upfront with the application. Home loan add backs offered in response to a query land far less convincingly than the same information provided at the outset.
Where the Numbers Land
The practical effect of home loan add backs is easiest to see as a sequence rather than a formula, and it explains why the taxable figure alone is so misleading.
Start with taxable income, apply the add backs the lender accepts, and the result is the assessable income used for servicing.
| Add back | Why it qualifies | Lender acceptance | Evidence needed |
|---|---|---|---|
| Depreciation | Non-cash expense | Almost universal | Depreciation schedule |
| Additional super | Discretionary above compulsory | Widely accepted | Financials and returns |
| Refinanced interest | Expense ends at settlement | Widely accepted | Loan statements |
| Retained profit | Available to the owner | Varies sharply | Company financials |
| One-off costs | Will not recur | Case by case | Accountant letter, invoice |
Read the acceptance column rather than the first one when weighing home loan add backs. Every row is a legitimate add back; only some of them will be applied by any given lender, and that is the whole game.
Getting the Most From Them
Helps the add backs land | Gets them ignored | |
|---|---|---|
Documents | Accountant letter itemising each one | A verbal explanation at query stage |
Lender choice | Matched to your add back profile | Whichever bank you already use |
The lender choice row is the one that moves the number most. Working out which lender suits your particular mix is the core of what happens before a pre-approval is lodged.
EXPERT INSIGHT
Amrinder Singh, Specialist Broker at Ezy Loans Australia
“Clients bring me a tax return and apologise for the number. Then we apply the home loan add backs their lender accepts and the apology stops. Nothing about the business changed in that ten minutes.”
Home loan add backs are the reason a decline from one bank tells you very little about what you can actually borrow.
PUT THIS INTO PRACTICE
Ask your accountant for a home loan add backs letter itemising every non-cash and non-recurring expense in your last two years, with amounts. That single document is what turns add backs from an argument into an assessment.
FREQUENTLY ASKED QUESTIONS
Everything Business Owners Ask,About Add Backs
Do sole traders get add backs too, or only companies?
Sole traders absolutely get them. Depreciation, additional superannuation and one-off costs all apply regardless of structure. Companies and trusts have access to retained profit as well, which sole traders do not, but the core categories are available to every self employed borrower with financials.
Can home office expenses be added back?
Sometimes, and it depends on the claim. Where a portion of household costs has been claimed against the business, some lenders will add that portion back on the basis that you would incur it anyway. Others will not. Supply the detail and let your broker match it to policy.
Does my accountant need to use a specific format?
No prescribed format, but clarity matters enormously. The letter should name each expense, state the amount, identify the financial year, and explain in plain language why it is non-cash or non-recurring. Assessors read many of these, and a vague letter is easy to set aside.
Are add backs applied to both years of financials?
Generally yes, they are applied to each year separately and then the lender takes the position its policy requires, usually the lower year or an average. Make sure your accountant addresses both years rather than only the most recent, or the earlier year will be assessed on the raw figure.
Can add backs be used on a low doc application?
Less relevant, because alternative documentation lending assesses income differently, often through business bank statements and a declaration rather than full financials. If you have the financials to support add backs, a full documentation application usually produces a better outcome than a low doc one.
Will add backs help if my business made a loss?
Possibly. A loss driven largely by depreciation or a one-off cost can look very different once add backs are applied, and some lenders will still consider the application. A genuine trading loss with no add backs behind it is much harder. Get the position assessed before assuming either way.
Home loan add backs are the single biggest lever available to a self employed borrower, and they are only worth what your lender will accept. Ezy Loans Australia compares add back policy across a panel as part of our self-employed home loan service, then presents your income the way that lender expects. The first conversation is free.
Written by Amrinder Singh
Amrinder Singh is a Specialist Broker and the founder of Ezy Loans Australia, working from 905 Hay Street in Perth. He arranges first home, refinance, investment, construction, self employed and asset finance across a panel of Australian lenders, and holds Credit Representative number 505232 under Australian Credit Licence 377294. Ask him which lender accepts your add backs.
Disclaimer: This article is provided for general information only and does not take into account your objectives, financial situation or needs. Add back treatment differs between lenders and changes without notice. This is not tax or accounting advice. Consider whether the information is appropriate for you and seek professional advice before acting. Credit assistance is provided by Amrinder Singh, Credit Representative 505232, authorised under Australian Credit Licence 377294 held by Mortgage Australia Group Pty Ltd.
Ezy Loans Australia is a Perth-based mortgage and finance brokerage helping first home buyers, investors and refinancers across Australia secure the right loan with confidence.
Contact Info:
- 905 Hay St, Perth WA 6000
- amrinder@ezyloansaustralia.com.au
- 0432 066 362