TL;DR Summary
Lenders can count trust distributions as income — but it depends on your trust type, consistency of distributions, and the specific lender's policy. You'll need 2 years of personal and trust tax returns, a trust deed, and an accountant's letter. Non-bank specialists are often more flexible than major banks. A specialist broker is essential for navigating lender selection.
Types of Trust and How Lenders Treat Each
Not all trusts are equal in the eyes of lenders. The type of trust structure you operate through significantly affects how — and whether — your distributions are counted as income.
Discretionary (Family) Trust
The most common trust structure for Australian small business owners and investors. In a discretionary trust, the trustee has full discretion over who receives distributions each year and in what amounts. This creates uncertainty for lenders — they can't rely on consistent distributions unless you have a clear 2-year history of receiving them.
- Lenders require at least 2 years of personal tax returns showing distributions received
- The trustee's discretion means some lenders are reluctant to count this income at all
- Consistent distributions over 2 years significantly improve lender confidence
- Accountant's letter confirming distributions are expected to continue is usually mandatory
Unit Trust
A unit trust distributes income in proportion to the number of units held — similar to shares. Because beneficiaries have a defined entitlement, lenders treat unit trust distributions more predictably. This structure is more common in property investment and SMSF scenarios.
- Distributions are proportional to units held — treated more like dividend income
- Easier for lenders to assess than discretionary trusts
- Still requires 2 years of tax returns showing the distributions
Bare Trust
A bare (or naked) trust holds assets on behalf of a named beneficiary who has an absolute right to both the income and the capital. For lending purposes, bare trusts are generally transparent — the lender looks through the trust and assesses the beneficiary's income directly. This structure is common in SMSF property purchases.
What Self-Employed Borrowers Need to Know
If you operate through a discretionary family trust and pay yourself a salary, lenders will primarily assess your salary. Distributions received in addition to salary may be included if they meet the 2-year consistency test. See our guide on self-employed add-backs for related strategies to maximise your assessable income.
What Documentation Lenders Need
Regardless of trust type, lenders will typically require a comprehensive documentation package to assess trust income. Missing any of these can result in the income being excluded entirely:
- 2 years of trust tax returns — showing the trust's income, expenses, and distributions made
- 2 years of personal tax returns — confirming the distributions were actually received by you as the beneficiary
- Trust deed — the legal document establishing the trust, naming trustees and beneficiaries
- Accountant's letter — from a registered CPA or CA confirming: the trust is operating, distributions are ongoing, and income is sustainable
- Business financials (sometimes) — profit and loss statements for the trust entity, if the lender's credit team requests them
Common Mistake
Many borrowers provide their personal tax returns but forget to include the trust's own tax returns. Lenders need both — your personal return shows distributions received; the trust's return shows where the income came from. Both are required.
Which Lenders Assess Trust Income Best
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Common Trust Income Pitfalls
Even borrowers with legitimate, substantial trust income are often caught out by these issues:
- No pattern of consistent distributions — If distributions vary wildly year to year or were skipped in some years, lenders may exclude them entirely. The trustee's discretion is seen as a risk.
- Loss-making trust entity — If the trust itself is showing a loss on its tax return (even with valid tax planning reasons), lenders become concerned about whether distributions can continue.
- New trusts under 2 years — Without a 2-year track record showing distributions on personal tax returns, most lenders cannot include this income. This is one of the most common issues we see.
- Distributions not matching tax returns — If the distributions you tell the broker about don't exactly match what appears on both the personal and trust tax returns, lenders will flag this immediately.
- Trust deed out of date — An old or poorly drafted trust deed that doesn't clearly identify beneficiaries or distribution provisions can cause problems with lender legal teams.
Check Your Borrowing Power
Not sure how your trust income affects your borrowing capacity? Use our borrowing power calculator as a starting point, then speak to our specialist team for a full assessment based on your actual trust documents.
Frequently Asked Questions
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