Key Takeaways
- Director wages are the cleanest income stream, assessed much like PAYG salary on payslips.
- Dividends and trust distributions can be counted with a consistent history, but treatment varies by lender.
- Money drawn as a director loan is generally not assessable income and can create a liability instead.
- How you take income out of your business directly affects what a lender will count, so the mix matters.
Accountants who run income through a company or trust usually draw it as some combination of director wages, dividends, trust distributions, and sometimes loans from the business. Each of those is taxed differently, which most accountants manage well, but each is also read differently by a lender, and that is far less widely understood. With variable rates around the 6% mark and serviceability tested above that, the way you take money out of your business directly shapes how much a lender will treat as your income, and getting the mix and the evidence right can change your borrowing capacity considerably.
Mapping how your particular income mix is assessed, and matching it to the right lender, is something a specialist mortgage broker for accountants does as part of the process. This article explains how banks treat director wages, dividends, trust distributions, and director loans for serviceability, and how the mix affects the outcome.
Director Wages
Of all the ways to take money from a company, a salary or director’s fee is the most straightforward for a lender to assess. This is the income stream that most resembles a conventional employee’s.
Where you pay yourself a regular wage or director’s fee through the company, supported by payslips and a payment summary, lenders generally assess it much like ordinary PAYG salary, which makes it clean to evidence and reliable to count. The trade-off many accountants face is that paying a modest wage and retaining profit in the company can be tax-efficient but understates your income on paper, since the lender sees only what is paid out as salary. Where you draw a consistent wage that reflects your real earnings, this is usually the simplest path to a strong assessment, though it is rarely the only stream involved for a structured borrower.
Dividends
Dividends are the next most common way to access company profit, and lenders can count them, though with more conditions than wages. Understanding the treatment helps you evidence them well.
Where the company pays you dividends as a shareholder, lenders can generally include them as income, usually requiring a consistent history, often two years, and evidence through your tax returns and the company’s financials showing it is profitable enough to sustain them. A one-off or irregular dividend carries far less weight than a steady pattern, because the lender is assessing whether the income will continue. Some lenders treat the gross dividend including franking credits differently from the cash amount received, so the assessed figure can vary between lenders. As with wages, dividends only reflect what is actually distributed, so profit retained in the company may not be counted unless a lender’s policy allows for it.
Trust Distributions
Where income flows through a trust, distributions are assessed with particular care, because their discretionary nature raises continuity questions. The key variable is who receives them.
Distributions to You
Distributions made to you as a beneficiary can generally be counted, supported by two years of trust and personal tax returns and a consistent history. The clearer the benefit to you, the more comfortable a lender is counting the income in full.
Distributions to Family Members
Where distributions go to a spouse or family members who are not applicants on the loan, lenders commonly exclude that income, even though the trust generated it. Some lenders will add back distributions made purely for tax where an accountant’s letter confirms the beneficiaries are not financially dependent on the income, but this is lender-specific.
Why Treatment Varies
Because a distribution is discretionary, some lenders decline to count trust income at all while others assess it on its merits, which is why the same distributions can be read very differently. Mortgage insurers also tend to view trust income cautiously, which can affect higher loan-to-value ratio (LVR) applications.
Director Loans and Drawings
This is the income stream most often misunderstood at home loan time, and the one that can quietly work against a structured borrower. Money taken as a loan from the business is not the same as income.
Where you draw money from your company as a loan rather than as wages or dividends, an arrangement many accountants will recognise in the context of the relevant tax rules, that money is generally not treated as assessable income for serviceability, because it is borrowed rather than earned. Worse for borrowing capacity, a complying loan from the company carries a repayment obligation, which a lender may treat as a liability that reduces how much you can borrow. Relying on drawings or loans to fund your lifestyle, rather than paying yourself assessable income, can therefore leave your borrowing capacity looking far smaller than your real position. Where a property purchase is planned, reviewing how you take money out of the business in the year or two beforehand, with your own tax adviser, is one of the most effective things a structured accountant can do.
How the Mix Affects Your Assessment
No single stream tells the whole story; what matters is how your total income mix is read together. This is where lender choice becomes decisive.
A structured accountant’s real earning capacity is usually spread across wages, dividends, and distributions, and lenders differ on how much of each they will count, whether they recognise retained profits, and how they treat the franking credits on dividends. One lender may assess your combined income close to your true position while another, looking at the same financials, counts only the salary and lands well below it. Whatever the assessed figure, the lender then tests your ability to service the loan at the actual rate plus a buffer of 3 percentage points set by the Australian Prudential Regulation Authority (APRA), roughly 9% at current rates. Because the assessable income is usually the binding constraint for a structured borrower, presenting the full mix clearly and matching it to a lender whose policy reads it favourably is often the single most valuable decision in the application.
How This Fits with the Professional Concessions
How you draw your income and the professional concessions are separate threads that both apply to an eligible accountant. It is worth confirming each.
Where you hold current membership of a recognised body such as CPA Australia (Certified Practising Accountant), Chartered Accountants Australia and New Zealand (CA ANZ), or the Institute of Public Accountants (IPA), you can generally access the waiver of Lenders Mortgage Insurance (LMI), which can save a premium exceeding $20,000 on a higher-LVR purchase. The waiver lowers cost but does not change serviceability, so the income a lender is willing to count from your wages, dividends, and distributions remains central to how much you can borrow.
Frequently Asked Questions (FAQs)
How do banks treat my director’s salary?
Generally much like ordinary PAYG salary, assessed on payslips and a payment summary, which makes it the cleanest income stream to evidence. The main limitation is that it reflects only what you actually pay yourself, so a modest wage with profit retained in the company can understate your real earnings on paper.
Will my dividends count as income for a home loan?
Often yes, with a consistent history, usually two years, evidenced through your tax returns and the company’s financials showing it can sustain them. A one-off dividend carries little weight. Some lenders treat the grossed-up dividend including franking credits differently from the cash received, so the assessed figure can vary between lenders.
Are trust distributions assessed the same as dividends?
Similar in that both need a consistent history, but distributions attract extra scrutiny because they are discretionary. Distributions to you are generally countable; those to non-applicant family members are commonly excluded. Some lenders will add back tax-driven distributions with an accountant’s letter, while others decline trust income altogether.
Can I use money I draw from my company as a loan as income?
Generally no. Money taken as a loan from the company is not assessable income for serviceability, because it is borrowed rather than earned. A complying loan also carries a repayment obligation that a lender may treat as a liability, so relying on drawings instead of paying yourself income can reduce your borrowing capacity.
Does paying myself a smaller wage hurt my borrowing capacity?
It can, if the rest of your income is taken in ways a lender counts less generously, such as retained profits or loans. Lenders assess what reaches you as countable income, so a tax-efficient low wage can understate your position. Reviewing how you draw income ahead of a purchase, with your adviser, can help.
Does the lender I choose change how my income mix is assessed?
Significantly. Lenders differ on how much of your dividends and distributions they count, whether they recognise retained profits, and how they treat franking credits. The same financials can produce quite different assessable income, so for a structured accountant, lender choice is often the most influential factor in the result.
The Bottom Line
For accountants who draw income across wages, dividends, distributions, and loans, how banks treat each stream determines your borrowing capacity as much as how much your business earns. Director wages are the cleanest and most reliably counted; dividends and distributions can be used with a consistent history but vary by lender; and money taken as a director loan is generally not income at all and can count against you. The professional LMI waiver still applies where you hold a recognised membership and can remove a premium exceeding $20,000 on a higher-LVR loan, but it does not change the serviceability test at the actual rate plus 3 percentage points. Presenting your full income mix clearly, and planning how you draw it ahead of a purchase, is what turns a tax-efficient structure into strong borrowing power.