What Income Proof Does a PAYG Director Need?
Case Study: Can Self-Employed Individuals Pay Themselves a Salary to Apply for a Loan? What Income Proof Does a PAYG Director Need?
Case Background
Recently, we assisted a client who is single and has no children. Before the pandemic, he started working as a director at a company and has since received a stable and consistent salary. In January this year, he acquired a 30% stake in the company, officially becoming a shareholder. At the same time, he began purchasing his first home and reached out to us for a pre-approval loan.
Case Challenge
Since the client is both a director and a 30% shareholder of the company, his income cannot be simply classified as PAYG (Pay As You Go) income, even though he receives a stable salary. Instead, it must be considered self-employed income.
Challenge Discussion
Once classified as self-employed income, the client’s income verification process becomes more complex. He would typically be required to provide additional documentation, including:
- His most recent individual tax return and ATO assessment notice
- The company’s most recent business tax return
- Profit & loss statement
- Balance sheet
Since the current financial year has not yet ended, the company’s tax return and financial statements were not yet available. Additionally, financial data from the previous year was negatively impacted by the pandemic, which could lead to the bank underestimating its actual income.
Solution
Given this situation, we recommended ANZ Bank’s Company Wage Policy. Under this policy:
- If the client has been self-employed for at least 18 months as a company director and shareholder
- And has received a fixed salary from the company for at least 6 months
Then, his salary can be assessed as PAYG income. He only needs to provide:
- A payslip issued within the last 60 days
- An ATO income statement showing at least 6 months of cumulative income
Final Outcome
We submitted the application to ANZ Bank, utilizing their Company Wage Policy to classify the client’s fixed salary as PAYG income. This eliminated the need for complex financial documents like business tax returns and profit & loss statements. As a result, the bank recognized his higher salary as an income source, and his loan pre-approval was successfully approved with a higher borrowing capacity.
Additionally, as a first-time homebuyer, the client received a $3,000 cash rebate from ANZ Bank (T&Cs apply—contact us for details).
Visit our website for more details: openmortgage.au