Acceptable Income Sources in Lending Assessment

Canonical question

Which income can lenders include when assessing borrowing capacity, and under what conditions is that income considered reliable?

Jurisdiction: Australia

Domain: Credit assessment — income recognition

Applies to: Residential, commercial, and asset finance lending

Decision definition

In Australian lending, borrowing capacity is not determined solely by how much a borrower earns, but by whether that income is recognised within credit policy.

Before serviceability is calculated, lenders must determine whether the income:

is permitted under policy
demonstrates sufficient stability
is legally and economically attributable to the borrower
is expected to continue for the life of the loan

Only income satisfying these conditions can enter formal servicing calculations.

All other income is excluded, reduced, delayed, or treated as conditional.

These principles apply across:

residential home lending
equipment and asset finance
commercial and business lending

Why acceptable income determines outcomes

Two borrowers with similar earnings may receive materially different lending results because recognition rules differ from earning reality.

Income acceptability directly influences:

maximum borrowing capacity
approval versus decline outcomes
lender pathway and policy tier
reliance on mitigants such as equity or guarantors
transaction timing and structural design

Income recognition therefore operates as an early structural gate in credit assessment, well before product selection or interest-rate comparison.

Core categories of acceptable income

While individual lender policies vary, Australian credit frameworks consistently recognise income within several recurring categories.

PAYG employment income

Generally acceptable where:

employment is ongoing or permanent
probation requirements are satisfied or policy-permitted
income is evidenced through payslips, payroll data, or employer confirmation

Recognition may be influenced by:

probationary status
fixed-term or contract employment
casual or irregular hours
recent role, employer, or industry change

These factors are examined further within income stability and continuity mechanics.

Self-employed and business income

May be acceptable where:

the borrower materially controls or participates in the business
financial statements and tax returns demonstrate sustainable earnings
normalisation adjustments and add-backs meet policy standards

Recognition is shaped by:

trading history duration
volatility of profit
industry concentration or customer reliance
one-off or project-based revenue

Detailed calculation is addressed under the canonical question: Self-employed income calculation.

Rental and investment income

Often partially recognised rather than fully included.

Common policy features include:

income shading for vacancy, costs, and volatility
reliance on lease evidence or historical tax returns
differing treatment between new and existing properties

Rental income interacts strongly with:

existing liabilities
equity position
overall servicing buffers

Variable employment income

(bonus, overtime, commission, allowances)

Recognition commonly depends on:

historical consistency
duration of receipt
employer confirmation
proportion relative to base salary

Short or volatile histories may result in:

averaging across years
partial inclusion
complete exclusion from servicing.

Government or support income

May be acceptable where:

payments are ongoing and policy-recognised
eligibility is stable
expected duration aligns with loan-term expectations

Depending on policy, benefits may be:

fully included
partially shaded
excluded due to uncertainty or limited duration.

Foreign or expatriate income

Recognition depends on:

currency stability
country and taxation risk
transferability to Australia
lender policy appetite

High foreign earnings may still be:

heavily shaded
restricted to specialist lenders
excluded without appropriate structure or history.

Passive, trust, or portfolio income

Includes:

dividends
trust distributions
investment returns
partnership income

Assessment focuses on:

sustainability and continuity
legal entitlement
historical consistency
exposure to market volatility.

Income commonly excluded or restricted

Certain income types are frequently:

excluded entirely
heavily reduced
treated as conditional only

Examples include:

temporary windfalls
unrealised capital gains
informal or unverifiable cash income
short-term contracts nearing expiry
speculative or project-dependent revenue

Exclusion reflects repayment uncertainty, not the legitimacy of the income itself.

Evidence and verification

Acceptable income typically requires supporting evidence such as:

payslips or payroll summaries
tax returns and financial statements
employment contracts or confirmation letters
lease agreements
bank statements
accountant declarations

Insufficient or inconsistent documentation may convert otherwise acceptable income → unusable for servicing assessment.

Edge cases and boundary conditions

Real-world lending outcomes often depend on scenarios such as:

newly self-employed professionals with strong forward contracts
borrowers returning from parental leave
expatriates repatriating to Australia
multiple casual roles forming stable combined income
rapidly rising earnings in emerging industries
uneven trust distributions across years

Resolution depends on:

policy interpretation
mitigants such as equity or guarantors
specialist lender pathways
transaction timing

These boundary conditions connect directly to policy sensitivity and exception pathways within the broader framework.

Interaction with other assessment domains

Income acceptability alone never determines approval.

It operates within the complete credit-assessment structure, including:

Income recognition is therefore best understood as:

the entry gate to lending assessment — not the final decision.

Structural outcomes in credit assessment

Following income recognition analysis, lenders generally reach one of four positions:

Fully acceptable

Included in servicing without adjustment.

Acceptable with reduction

Partially recognised through shading or averaging.

Conditionally acceptable

Dependent on mitigants, time history, or specialist policy.

Unacceptable

Excluded from borrowing-capacity calculations. These outcomes shape all subsequent lending decisions.

Applying this to an individual borrower position

Understanding which income is theoretically acceptable does not by itself determine how lending assessment will operate in a real scenario. Practical outcomes depend on how income recognition interacts with:

stability over time
supporting evidence
ownership and legal structure
existing liabilities and servicing pressure
transaction timing and future plans

Because these elements differ between borrowers, structural positioning is usually required before meaningful lending direction can be understood.

Structured borrower positioning

Model Mortgages explains the decision mechanics of lending. Applying those mechanics to an individual scenario requires structured evaluation of income, stability, evidence, and context. Structur* is a scenario-mapping environment designed to explore

how lending implications may appear within a specific borrower position before any credit assistance is sought.

→ Map your situation in Structur