Key Takeaways
- Add-backs restore non-cash or non-recurring expenses to your net profit, lifting the income a lender assesses.
- Depreciation is the most widely accepted add-back because no cash actually leaves the business.
- Extra super, one-off costs, retained profits, and interest on debt being refinanced can also be added back.
- Lenders differ on which add-backs they accept, so the same financials can produce different assessable income.
For a self-employed accountant, add-backs are often the difference between a borrowing capacity that reflects your tax return and one that reflects your real earnings. The deductions you legitimately claim to reduce taxable income also reduce the figure a lender assesses, but many of those deductions are not genuine ongoing cash costs, and the right lender will add them back. With variable rates around the 6% mark and serviceability tested above that, knowing which add-backs exist, and which lenders accept them, is one of the most practical pieces of knowledge an accountant can bring to their own application.
Identifying every eligible add-back and matching them to a lender that accepts them is something a specialist mortgage broker for accountants does as part of the process. This article explains what an add-back is, the most common ones accountants should know, and how lenders apply them.
What an Add-Back Is
Before the specific items, it helps to be clear on the principle, because it explains why add-backs are legitimate rather than a trick. The idea is to bridge taxable income and real cash flow.
When you apply as a self-employed borrower, standard lenders assess your net taxable income, the figure after all business deductions. For a business owner, that figure is often a poor reflection of actual cash flow, because some deductions reduced taxable income on paper without representing an ongoing cash cost. An add-back is a legitimate business expense that lowered your taxable income but does not genuinely affect your capacity to repay a loan. By identifying these items in your profit and loss statements and adding them back to net profit, a lender that allows them arrives at an assessable income closer to your real earning capacity. The catch is that lender policies vary, so the same set of financials can be assessed differently depending on who reads them.
The Most Common Add-Backs
While policies differ, a handful of add-backs come up most often and are worth knowing in detail. Each addresses a deduction that is not a true ongoing cash expense.
Depreciation
Depreciation is the most widely accepted add-back, because it is a non-cash deduction, no money actually leaves your account each month. Whether it relates to a vehicle, equipment, or machinery, or an instant asset write-off, most lenders will add back the full depreciation figure to your assessable income, making it the first place to look for recoverable income.
Additional Superannuation Contributions
Where you pay yourself superannuation above the compulsory guarantee rate, lenders often treat the extra amount as a voluntary expense, since you could choose to stop those additional contributions to meet mortgage repayments. The surplus above the mandatory rate can therefore frequently be added back, though the compulsory portion cannot.
One-Off or Extraordinary Expenses
A genuinely non-recurring cost, an office relocation, a one-time legal settlement, or a major one-off project expense, can often be added back, because it will not affect future cash flow. Lenders generally require an accountant’s letter confirming the expense was a one-off and is not expected to recur before allowing it.
Retained Profits
Where you operate through a company and leave profit in the business rather than paying it out, some lenders will assess your share of those retained earnings as part of your servicing capacity, provided you control the company and can show consistent profitability. Not every lender does this, so it is one of the more policy-dependent add-backs.
Interest on Business Debt Being Refinanced
Where your business currently pays interest on a loan or facility that will be repaid or consolidated as part of the new lending, that interest expense can often be added back, because the liability, and so the expense, will cease once the new loan settles. This applies only where the debt genuinely ends, not where it continues alongside the new loan.
How Lenders Apply Add-Backs
Identifying add-backs is only half the task; how a lender then uses them shapes the final figure. A few mechanics are worth understanding.
Once your net profit and allowable add-backs are totalled, most lenders average the result over your last two years, which can work against you where your most recent year is your strongest. In that situation, some lenders will instead apply your add-backs to your most recent year alone under a one-year assessment, which suits a growing business. Lenders also differ in which add-backs they accept at all, so the same financials can produce materially different assessable income from one lender to another. Clear, well-itemised financials make add-backs far easier to claim, since a lender can readily see which items are non-cash or non-recurring, whereas poorly itemised returns can leave legitimate add-backs unrecognised. Whatever the final 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.
How This Fits with the Professional Concessions
Add-backs and the professional concessions are separate threads that both apply to an eligible self-employed 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-loan-to-value-ratio (LVR) purchase. The waiver lowers cost but does not change serviceability, so the assessable income your add-backs help establish remains the central factor in how much you can borrow.
Frequently Asked Questions (FAQs)
What is an add-back in simple terms?
It is a legitimate business expense that reduced your taxable income but is not a genuine ongoing cash cost, so a lender can add it back to your net profit when assessing your income. Common examples include depreciation and one-off expenses. Add-backs bridge the gap between your tax return and your real earning capacity.
Which add-back is most reliable?
Depreciation is the most widely accepted, because it is a non-cash deduction, no money actually leaves the business each month. Most lenders will add back the full depreciation figure. Other add-backs, such as retained profits, are more policy-dependent and accepted by fewer lenders, so depreciation is usually the most dependable starting point.
Can I add back my superannuation contributions?
Generally only the amount above the compulsory guarantee rate. Lenders treat extra, voluntary super contributions as discretionary, since you could stop them to meet repayments, so the surplus can often be added back. The mandatory portion cannot, as it is a genuine ongoing obligation rather than a voluntary expense.
Do I need an accountant’s letter for add-backs?
For some, yes. One-off or extraordinary expenses usually require an accountant’s letter confirming the cost was genuinely non-recurring before a lender will add it back. Depreciation is generally evidenced directly from the financials. A clear, itemised set of financials makes all add-backs easier for a lender to recognise.
Do all lenders accept the same add-backs?
No, and this is the key point. Lenders differ on which add-backs they allow and how they apply them, so the same financials can produce different assessable income depending on the lender. Matching your particular add-backs to a lender whose policy recognises them is often where borrowing capacity is found.
Will add-backs let me borrow more than my tax return suggests?
Often yes, where genuine non-cash or non-recurring deductions have reduced your taxable income. Add-backs restore those to your assessable figure, which can lift borrowing capacity. The increase is not unlimited, since the lender still tests serviceability at the actual rate plus a 3 percentage point buffer, but it can be meaningful for a business with significant depreciation or one-off costs.
The Bottom Line
For self-employed accountants, add-backs are the practical mechanism that turns a tax-minimised return into a fair reflection of your real income. Depreciation is the most reliable, with additional superannuation, genuine one-off expenses, retained profits, and interest on debt being refinanced all able to lift your assessable figure where a lender allows them. The catch is that lenders differ widely on which they accept and whether they average your two years or use your strongest recent one, so the same financials can produce very different outcomes. The professional LMI waiver still applies where you hold a recognised membership, but it does not change the serviceability test at the actual rate plus 3 percentage points. Capturing every eligible add-back, evidencing it clearly, and matching it to the right lender is what lets your borrowing capacity reflect what you genuinely earn.