Rising official interest rates and a sustained cost-of-living squeeze have sharpened the focus on exactly how much a self-employed borrower can service. Since early 2024, several specialist and non-bank lenders have quietly tightened the way they treat add-backs when calculating net profit for low-doc and alt-doc applications. The catalyst is twofold. First, APRA’s prudential framework—particularly the 3% serviceability buffer it expects ADIs to apply—flows through to the non-bank sector because private funders and warehouse providers increasingly benchmark their origination standards against the authorised deposit-taking institutions they rely on for capacity. Second, the ATO’s expanded data-matching program, which now pulls granular business activity statement (BAS), single touch payroll and investment property records, has made it easier for credit assessors to cross-reference what a borrower declares to the tax office with what they put on a loan application. A bad mismatch—especially on an add-back that the profit-and-loss statement treats as non-cash but the bank statement shows as a genuine cash outflow—can kill a deal before valuation is ordered.
Consequently, knowing which add-backs each lender will allow, and under what conditions, has moved from a niche broker skill to a core underwriting gate. The five-figure difference between a Pepper Money acceptance and a Bluestone decline often sits in a single line item: depreciation, director’s wages drawn in a different year, or an interest expense on a related-party loan that the lender’s servicing calculator says must stay in the P&L. This article catalogues the add-back treatments applied by six specialist lenders that dominate the self-employed segment—Pepper Money, La Trobe Financial, Liberty, Resimac, Bluestone and Brighten—with policy dates and exact thresholds where they exist. It is not advice; it is a field note on what passes credit.
How Add-Backs Reshape Serviceable Income for a Non-PAYG Applicant
In a conventional full-doc loan, the lender starts with net profit before tax from the last two years of tax returns and financials. For a self-employed borrower using a low-doc or alt-doc pathway—BAS-only, accountant’s letter, or declared income—the starting point is often the business’s profit-and-loss statement or the accountant’s certificate. From that figure, the assessor adds back items that reduced accounting profit but did not consume cash, and therefore do not constrain the borrower’s ability to meet mortgage repayments. The adjusted figure becomes the “net profit as assessed” for serviceability.
The stakes are high. A company director with a $120,000 accounting net profit and $35,000 of eligible add-backs sees their assessed income jump to $155,000. At a 6% assessment rate with a 3% buffer, that extra $35,000 supports roughly $180,000 of additional borrowing capacity. Remove the add-backs and the loan often cannot proceed.
The APRA backdrop and why it matters for specialist lenders
APRA’s Prudential Practice Guide APG 223 “Residential Mortgage Lending” (last updated 9 November 2022) states that an ADI should “exercise a high degree of conservatism when relying on non-verified income, including income from self-employment.” While specialist non-banks are not directly regulated by APRA, their warehouse funders are. From mid-2023, several major warehouse providers began requiring non-bank originators to align their serviceability calculators with APRA’s buffer floor and to document add-back justifications with the same rigour expected of a full-doc application. The result is that a policy that previously said “depreciation may be added back” now specifies: “depreciation added back only where supported by a current tax depreciation schedule and capped at 100% of the accounting charge.”
Why lenders add back non-cash items
The logic is simple: an expense that depresses net profit on paper but does not represent a cash outflow should not reduce borrowing power. Depreciation is the classic example. A company buys a $50,000 vehicle and depreciates it at $10,000 a year. The $10,000 reduces profit but the cash left the business at purchase, not in the current year. Adding it back restores the true cash-generation capacity. The same reasoning applies to amortisation of goodwill, unrealised foreign exchange losses, and non-cash provisions. Lenders uniformly accept these, though they differ on what documentation satisfies them.
Add-Backs by Expense Category
A broker or borrower who understands the category-level rules can avoid wasting time on a lender that will not accept a particular add-back. Below are the main expense groups, together with how the specialist lenders treat them.
Depreciation and amortisation
Every specialist lender in this cohort permits an add-back for depreciation and amortisation of fixed assets, provided the expense is not a proxy for an ongoing capital expenditure requirement. Pepper Money’s “Alt Doc Self-Employed” policy (1 February 2024) allows a full add-back of depreciation claimed in the profit-and-loss statement when a registered tax depreciation schedule is supplied and the assets are still in use. La Trobe Financial’s “Specialist Commercial Alt Doc” (March 2024) takes the same position but caps the add-back at the accounting depreciation figure—if the borrower wants to use tax-effective accelerated depreciation rates, only the accounting amount is accepted.
Liberty’s “Classic Alt Doc” (v3.4, 15 January 2024) goes further: it permits an add-back of 100% of depreciation on plant and equipment, but only 50% on buildings, reflecting the view that building depreciation often masks long-term capital works that will require future cash. Resimac’s “Specialist Full Alt” (1 July 2023) allows a full add-back but requires the borrower’s accountant to confirm in writing that no significant maintenance capex is forecast for 12 months.
Interest and lease payments on related-party loans
Many self-employed borrowers have loans from a family trust or a director’s loan account that charge interest. In the P&L the interest is a real cash expense, but the lender may add it back if the borrower demonstrates the debt will be repaid or capitalised before settlement. Bluestone’s “Near Prime Alt Doc” policy (July 2024) adds back interest on related-party loans only if the borrower provides a signed deed of forgiveness or a bank statement showing the debt has been cleared prior to settlement. Without that, the expense stays in the P&L and servicing is calculated net.
Brighten’s “Specialist Full Doc & Alt Doc” (policy effective 1 March 2024) has a more structured approach: interest on a related-party loan can be added back up to 75% of the annual interest charge if the loan has no fixed repayment terms and the related party confirms in a statutory declaration that no principal or interest repayments will be demanded in the first 24 months of the new mortgage. The remaining 25% stays in servicing as a buffer for possible future outflows.
Directors’ wages and dividends not drawn
A common family company scenario: the owner-director takes a modest salary for tax reasons, but the business generates substantially more profit, some of which stays in the company as retained earnings. Lenders will add back director wages if they are genuinely available. Pepper Money’s policy permits a 100% add-back of unpaid director fees and wages where the company’s retained earnings cover the amount and the director resolves not to draw the funds during the loan term. Liberty requires the add-back to be supported by the last two years’ director loan account movements; if the director has historically drawn most of the available profit, the lender caps the add-back at 50% of last year’s retained profit.
La Trobe Financial, in its “Low Doc Commercial” product (1 July 2023), will add back dividends paid to a director only if the dividend is discretionary and the company’s ASIC historical search confirms the dividend has not been declared as a fixed preference payment. Resimac’s policy is the most conservative: dividends paid are not added back because they represent a real cash distribution; only unpaid directors’ salaries disclosed in the financial statements qualify.
Non-recurring and one-off expenses
If a business incurred a $25,000 legal bill to negotiate a lease, or a one-off write-down of obsolete stock, a lender may strip it out of the P&L to arrive at a normalised earnings figure. Bluestone’s policy is explicit: “Non-recurring expenses verified by an accountant’s letter may be added back up to a cumulative cap of $30,000 per annum.” Brighten applies no dollar cap but requires the expense to be described in the accountant’s certificate as “non-recurring and not indicative of future trading.” Pepper Money adds back legal and professional fees related to a one-off transaction provided the fees are itemised on the invoice and the matter is closed.
Personal and discretionary expenses run through the business
Sole traders and small proprietary companies often route personal motor vehicle costs, travel, home-office expenses and family phone bills through the business. In a full-doc assessment these are typically added back, because they represent a discretionary choice rather than a necessary business cost. Liberty’s Classic Alt Doc policy allows add-backs for personal use of motor vehicles up to the ATO’s per-kilometre rate multiplied by business kilometres; any amount above that is treated as a permanent expense. La Trobe Financial caps personal expense add-backs at 10% of gross business income unless the borrower can produce a detailed schedule signed by their accountant. Resimac will add back the full amount of personal expenses that appear in the P&L only if the borrower’s tax return shows the same expenses declared as non-deductible.
Lender-Specific Policy Snapshots
Because serviceability calculators hard-code these rules, the same set of financials can produce wildly different borrowing capacities across the lender panel. The summaries below reflect the policy manuals current as of August 2024, based on the respective lenders’ product guides and accredited broker portals.
Pepper Money – Alt Doc Self-Employed (1 February 2024)
Pepper allows full add-backs for depreciation (with a tax schedule), amortisation, one-off legal and professional fees, and unpaid director salaries covered by retained earnings. Interest on related-party loans is added back only if the loan is repaid at settlement. The standout: Pepper will add back 80% of trust distributions paid to a beneficiary who is also an applicant, provided the trust’s tax return shows the distribution as income in the beneficiary’s hands and the beneficiary confirms the cash will not be needed for personal living expenses during the first 12 months of the loan.
La Trobe Financial – Specialist Commercial Alt Doc (March 2024)
La Trobe caps total add-backs, excluding depreciation, at 20% of net profit before tax. Any amount above that threshold requires a second-year financials check or a BAS trail confirming revenue stability. Depreciation is capped at the accounting charge. Dividends are added back only when they are classified as discretionary and not paid. Personal expenses are capped at 10% of gross income. The lender’s credit guide also requires that any add-back exceeding $50,000 individually must be referred to the credit committee for manual sign-off.
Liberty Financial – Classic Alt Doc (v3.4, 15 January 2024)
Liberty’s product is built for speed, with a “verified income” alternative that relies on accountant letters and six months of business bank statements. Liberty will add back 100% of depreciation on plant, 50% on buildings, 100% of unpaid director wages where the director loan account is in credit, and interest on external business loans that are being refinanced and paid out. One nuance: Liberty’s servicing calculator automatically deducts a 2% “ongoing business capex” allowance from the adjusted net profit unless the accountant’s letter states that the business is asset-light and requires no material capital expenditure.
Resimac – Specialist Full Alt (1 July 2023)
Resimac maintains a conservative stance. It requires two years of financials for add-backs above $10,000 total, even on an alt-doc application. Depreciation on buildings is never added back; plant and equipment depreciation requires a signed plant schedule. Director wages are added back only if the company’s bank statements show no corresponding cash withdrawal for the six months preceding application. Resimac’s policy explicitly states: “Add-backs shall not exceed 15% of net profit before tax unless supported by a full set of management accounts verified by a registered tax agent.”
Bluestone – Near Prime Alt Doc (July 2024)
Bluestone’s July 2024 overhaul introduced a hard cap: aggregate add-backs, including depreciation, cannot exceed 20% of net profit before tax. The lender justifies this with data showing that loans with add-backs above that threshold experienced a 2.3x higher 90-day delinquency rate in its 2022 vintage. A single add-back item over $15,000 requires an accountant’s explanation of the nature, necessity and non-recurrence of the expense. Interest on related-party loans is only added back with a deed of forgiveness.
Brighten – Specialist Full Doc & Alt Doc (1 March 2024)
Brighten has the most granular approach. It assigns a “confidence score” to each add-back category. Depreciation and amortisation receive a 1.0 multiplier (full add-back). Unpaid director wages receive 0.75 unless backed by two years of consistent director loan account data, in which case 1.0. Non-recurring expenses receive 0.5 by default, rising to 1.0 if the accountant certifies the expense is “extraordinary” and the business has not incurred a similar expense in the prior three years. The aggregate adjusted net profit then flows into Brighten’s standard serviceability model, which applies a 3% buffer over the product rate.
Pitfalls and Lessons from the Credit Queue
Add-backs that look reasonable on paper often fail because the documentation lags the lender’s internal checklist, or because the borrower’s tax return tells a different story from the management accounts.
The ATO data-matching hazard
Since the ATO rolled out its small-business data-matching program covering merchant facility sales, ride-sourcing income, and taxable payments reporting, lenders have been able to spot inconsistencies almost in real time. An add-back for a sudden spike in “professional fees” in June 2024 that the ATO’s record shows was not reflected in the business’s BAS will prompt a verification call that can take weeks. Brighten’s credit manual explicitly tells assessors to “compare add-back items with the borrower’s lodged BAS where available,” a practice now mirrored by Resimac and Bluestone.
The “double-dip” trap
A company that depreciates a vehicle and also leases a replacement under a finance lease may appear to have two legitimate non-cash expenses. Most lenders will only allow one: Liberty, for example, caps total vehicle-related add-backs at the higher of the depreciation or the lease interest, not both. Submitting both will result in an immediate downwards adjustment and a lower assessed income than if only one had been claimed.
The shelf-life of an add-back
Accountants are often generous in their initial profit-and-loss preparation, identifying every possible non-cash item. Yet a lender typically needs the add-back to be “sustainable.” La Trobe Financial’s policy asks the assessor to consider whether the add-back will recur in the next financial year; if yes, it may be excluded altogether. A one-off stock write-down that happens every second year is not treated as non-recurring.
Actionable Takeaways
- Start with the lender, not the add-backs. A La Trobe application that blows through the 20% aggregate cap will be declined regardless of the logic. Map the borrower to the lender whose cap, multiplier and buffer match the client’s P&L before preparing the accountant’s letter.
- Obtain a Tax Depreciation Schedule for every asset-heavy business. Without it, Pepper, Brighten and Liberty will reduce the add-back to zero for plant, equipment and buildings—wiping out tens of thousands of dollars of assessed income.
- Clean up related-party loans before submission. A deed of forgiveness dated and signed prior to application removes the interest expense from the servicing equation for Bluestone, Pepper and Brighten. If the loan must stay in place, switch to Brighten, which allows a 75% add-back with a statutory declaration.
- Request a six-month business bank statement even for an alt-doc loan. Resimac and Liberty use it to cross-check whether a director’s wages that are being added back are actually being left in the company. If cash outflows match the salary line, the add-back will be denied.
- Normalise add-backs over two years. Use the accountant’s letter to explain why an expense is non-recurring and support it with the prior year’s P&L showing no equivalent item. That simple step turns a borderline add-back into a accepted one for Brighten, which runs a three-year look-back on extraordinary expenses.