Can income distributed from a trust be used for a home loan?

Income earned through a family discretionary trust or a unit trust is common for business owners and investors, but it can complicate a home loan, because the income reaches you as a distribution rather than a simple salary. Here is how lenders tend to treat trust income.

How trust income reaches you

In a trust structure, income is earned by the trust and then distributed to beneficiaries, which can include you. So rather than a straightforward wage, your income appears as a trust distribution in your tax return. Lenders need to understand and verify this to count it toward your borrowing capacity.

Many lenders will count it

Some lenders are comfortable counting income distributed to you from a trust, where it is consistent and properly evidenced. They look at the trust financial statements and tax returns, and your personal returns showing the distributions, to satisfy themselves the income is real and ongoing. Whether and how a lender does this varies.

Consistency matters

As with other income types, lenders favour a consistent history of distributions over a one off or irregular pattern. A steady track record of income flowing to you from the trust gives a lender confidence it will continue, which makes it easier to count toward serviceability.

The structure affects the assessment

Whether the trust is discretionary or a unit trust, who the beneficiaries and trustees are, and whether a company is involved as trustee, can all affect how a lender assesses the income and the loan. More complex structures may require more documentation and a lender comfortable with them.

Retained profit in the trust

Sometimes profit is retained in the trust rather than fully distributed, similar to a company. Some lenders may look at the underlying trust income, not only what was distributed to you, where you control the trust. This can affect the income figure, and the treatment varies by lender.

Tax and legal complexity

Trusts carry tax and legal complexity, and how income is distributed has tax consequences specific to your circumstances. These are matters for your accountant and, where relevant, your legal adviser, rather than lending questions, and they should be involved alongside any loan.

Find a lender comfortable with your structure

Because treatment depends on the structure and the lender, the useful step is to match your trust arrangement to a lender comfortable with it. A broker who works with trust structures can identify those lenders, while your accountant prepares the financials, usually at no cost to you for the broking. This is general information, not tax, legal or financial advice.