Permitted Business Add-Backs in Lending Assessment

Canonical question

Which business expenses can lenders add back when calculating self-employed income, and what causes add-backs to be rejected or reduced?

Jurisdiction: Australia

Domain: Credit assessment — self-employed normalisation adjustments

Applies to: Residential, commercial, and asset finance (where business income supports servicing)

Decision definition

Add-backs are not “extra income.” They are policy-governed adjustments used to estimate maintainable earnings where reported profit includes expenses that may be:

non-recurring
non-cash
discretionary
abnormal for the business

Lenders permit add-backs only where the expense is clearly evidenced, policy-allowed, and unlikely to recur in the same form.

Common categories of add-backs

Policy varies, but common categories include:

Non-cash items

depreciation (treatment depends on policy and asset replacement expectations)
amortisation (where applicable)

One-off / non-recurring expenses

legal settlement costs (if evidenced as one-off)
abnormal repairs (policy dependent)
extraordinary events (with documentation)

Interest (sometimes)

business interest may be adjusted where the underlying liability is being refinanced or replaced
often tightly controlled and frequently disallowed unless clearly mapped to the final debt position

Director’s remuneration structure issues

avoiding double counting between wages and distributions
normalising where remuneration is inconsistent across years

Why add-backs are rejected

Add-backs are often rejected where:

the expense is recurring in practice
the business requires ongoing capital replacement (depreciation as “real” cost)
the expense is discretionary but not clearly removable
the claim relies only on accountant commentary without documentary support
the expense masks profit volatility or declining performance

Evidence expectations

full financial statements showing the expense classification
accountant letter (supporting, not primary evidence)
invoices/records for one-off items (where required)
explanation of recurrence likelihood
reconciliation between tax return and financial statements

Structured borrower mapping

Applying this assessment logic

Add-back outcomes depend on business type, policy sensitivity, and whether the expense is truly non-recurring.

Structur allows scenario mapping so you can see how add-back mechanics may apply before seeking credit assistance.

→ Map your situation in Structur

Canonical status: Specialist reference

Role in lending assessment: Determines how reported profit is normalised into servicing income

Next canonical question: Unstable income decline conditions