Treasury's Instant Tax Deduction Plan: What Self-Employed Borrowers Need to Know About Loan Eligibility

The Australian Treasury is currently consulting on Instant Tax Deduction exposure draft legislation, with submissions open until 1 May 2026. The proposal would allow businesses to immediately deduct eligible asset purchases in the year of acquisition -- rather than depreciating them over multiple years under current rules.

For self-employed borrowers, this is welcome tax news. But it comes with a significant lending complication that deserves careful planning.

The Tax Benefit

Under existing depreciation rules, many business assets must be written off gradually -- appearing as an expense spread across several financial years. Instant deductions allow business owners to claim the full cost in the year of purchase, substantially reducing taxable income for that year.

This can mean lower tax bills and improved cash flow -- particularly for tradies, contractors, and small business owners who regularly invest in equipment.

The Lending Complication

Banks and lenders typically assess self-employed income using the last one to two years of tax returns. If you claim a large instant deduction, your declared taxable income drops -- which means a bank's serviceability assessment may show lower borrowing capacity than your actual cash flow supports.

This disconnect between taxable income and real earnings is not new, but instant deductions could make it more pronounced for borrowers who make significant asset purchases in the year they apply for a mortgage.

How Alt Doc Loans Solve This Problem

This is precisely the scenario Alt Doc (Alternative Documentation) loans are designed to address. Rather than relying on tax returns alone, lenders like MPFG Capital assess income through multiple lenses:

• BAS statements -- reflect actual GST-reportable turnover, independent of tax deductions
• Accountant letters -- certify income based on the business's genuine trading performance
• Bank statements -- show real cash flows into the business account over recent months

These documents present your true earning capacity -- not what remains after aggressive but legitimate tax minimisation strategies.

Who This Affects Most

• Tradies, contractors, and small business owners who regularly invest in tools or vehicles
• Restaurant and food industry operators (a core MPFG client segment)
• Any self-employed person planning a significant equipment or asset purchase in the 2025-26 financial year
• Business owners who use a tax agent to maximise deductions each year

Timing Matters

Before using an instant deduction that significantly reduces your declared income, speak to both your accountant and your mortgage broker. If you are planning to apply for a home loan within the next 12 to 18 months, the timing of large deductions can meaningfully affect how a bank assesses your application.

MPFG's Alt Doc loan programs evaluate your actual business income -- not just what appears on your tax return after deductions. Our lending specialists can help structure your application to reflect your real financial position.

The Treasury consultation closes on 1 May 2026. If enacted, the measure could take effect as early as the 2025-26 tax year, making this a timely consideration for self-employed buyers planning ahead.

This article contains general information only. It does not constitute tax or financial advice. Please consult a registered tax agent or licensed financial adviser for advice specific to your situation.