PAYG vs ABN Subcontractors: Two Very Different Assessments
The first question for any tradie or subcontractor applying for a home loan is: how are you paid?
If your principal contractor withholds tax and issues you a payment summary (PAYG), you're assessed as an employee — full employment income, no self-employment hurdles. Many large subcontractors in construction and civil works pay PAYG. If this is you, getting a home loan is straightforward.
If you invoice your own ABN, own your own tools, and control your hours, you're an ABN subcontractor — assessed as self-employed. This is where most tradies run into trouble.
The Tradie Tax Problem
Most tradies are diligent about claiming every allowable deduction: tools, vehicle, phone, workwear, travel. These are all legitimate deductions. But collectively, they can reduce a $180,000 gross trade income to a $90,000 taxable income.
When the bank sees $90,000, they lend accordingly. The problem isn't the deductions — it's that the tax return alone doesn't tell the full story.
The solution has three layers:
- Add-backs — Depreciation on tools and vehicles is a non-cash deduction that most lenders add back. If you claimed $25,000 in depreciation, that can be added back to your assessed income.
- BAS-based assessment — Low doc lenders can use your quarterly GST turnover from BAS statements to calculate income. For a tradie with $280,000 in annual GST-inclusive turnover, the BAS income assessment is often 40–50% of that ($112,000–$140,000) — significantly higher than the $90,000 the tax return shows.
- Bank statement assessment — Some lenders use 12 months of business bank deposits. If your account shows $200,000+ in annual deposits, this can support a much higher income figure than your tax return.
Real example
An electrician in Western Sydney — $210,000 gross, $95,000 taxable income after deductions and depreciation. Full doc with major bank: maximum loan ~$560,000. Same client with low doc (BAS) through a specialist lender: income assessed at $126,000 (~60% of GST turnover). Maximum loan: ~$740,000. Same person, same income, different lender — $180,000 more borrowing capacity.
Documents Tradies Need for a Home Loan
Full doc (ABN self-employed):
- Last 2 personal tax returns + ATO notices of assessment
- If operating through company/trust: business tax returns + P&L + balance sheet
- Last 3 months business bank statements
- ABN registration confirmation
- Accountant's letter confirming income, business structure, and trading status
- Trade licence / contractor's licence (some lenders request this)
Low doc (BAS-based):
- Last 12 months BAS statements (4 quarters)
- Last 12 months business bank account statements
- Accountant's letter
- 20% deposit minimum
Cash Work: The Hard Truth
Some tradies take a portion of work in cash — unreported. This is tax evasion, and it's illegal. More relevant to this guide: you cannot use undeclared cash income to support a home loan application without committing fraud. Banks verify income through tax returns and BAS — there's no pathway that includes undeclared income.
If your actual income is higher than your declared income because of unreported cash, the only legitimate solutions are:
- Use BAS statements (which reflect all invoiced work, reported or not)
- Use bank statements (which show deposits from all sources)
- In some cases, retrospectively declare income through amended returns (speak to your accountant)
Tradie and want to know your real borrowing power?
Tell us your trade and income situation — we'll run the numbers across full doc, low doc, and BAS-based assessments to find your best option. Free, no obligation.
The Tradie Loan Strategy That Gets Results
1. Use a specialist broker, not your bank
Walking into your bank as a tradie with a high-deduction tax return is the least effective approach. Your bank branch credit officer isn't trained to identify add-backs, doesn't know the non-major lenders with BAS income products, and applies their own bank's conservative policies. A specialist broker who works regularly with tradies and self-employed borrowers will assess you across 30+ lenders and find the one with the most favourable policy for your situation.
2. Get your depreciation schedule documented
If you've claimed depreciation on a vehicle worth $80,000 and a tool inventory worth $35,000, the total depreciation might be $30,000–$45,000 per year. This is almost always an add-back. Your accountant should provide a detailed depreciation schedule that your broker can present to the lender's credit team.
3. Keep your business account clean for 12 months before applying
Business bank statements are one of the key documents in any tradie home loan. The ideal profile: regular invoiced deposits, no unexplained outflows, no months with near-zero deposits. If your business account has been irregular or commingled with personal spending, clean it up 12 months before you plan to apply.
4. Consider a company structure if you haven't already
Sole traders are assessed purely on personal tax returns. Company structures allow lenders to assess director salary + net company profit — which is often a more accurate picture of total available income. This restructuring takes time (12–18 months before the company's first full year return) but significantly improves long-term borrowing capacity.