What annualisation is for
Lenders assess serviceability on annual income, but almost nothing a client hands you is annual. Payslips are weekly, fortnightly or monthly. A year-to-date figure covers whatever part of the financial year has elapsed. Casual and overtime earnings vary pay to pay. Annualisation is the arithmetic that turns each of those into the one number the servicing calculator wants — and the point where a servicing assessment most often goes quietly wrong, because the maths is easy and the judgement is not.
The three methods
1. Multiply by the pay frequency
The simple case. A regular, unchanging salary payslip annualises by frequency: weekly × 52, fortnightly × 26, monthly × 12. Use the gross figure (before tax) and the base amount only — strip out overtime, allowances and bonuses, which are assessed separately below. Twice-monthly pay is × 24, not × 26; a client paid on the 15th and the last day of the month receives 24 pays a year, and treating it as fortnightly overstates income by 8%.
2. Year-to-date ÷ days elapsed × 365
The method lenders prefer for anything variable, because it averages over the period rather than trusting one payslip. Take the YTD gross, divide by the number of days from the start of the financial year (1 July) to the period end date on the payslip, and multiply by 365.
The trap is the date. Count to the end of the pay period, not the payment date and not the date the payslip was printed — a payslip paid on 10 October for the period ending 4 October has 96 days of income in it, not 102, and the six-day difference moves an $8,000 YTD figure by nearly $2,000 a year. Early in the financial year the method is unreliable for the same reason in reverse: a YTD covering three weeks of July annualises a single unusual pay into a full year. Most lenders will not accept a YTD method until at least two or three months of the year have run, and will ask for the prior year's payment summary alongside it.
3. Average over two years
For income that is genuinely lumpy — commission, bonus, overtime that comes and goes with rosters — lenders commonly average the last two financial years, and often take the lower of the two-year average and the most recent year. A client whose bonus doubled last year does not get last year's figure; a client whose bonus halved usually gets this year's.
Common lender treatments
Every lender publishes its own policy and they differ in detail. The patterns below are widespread enough to plan around; the percentages are the ones brokers see most often, not a promise about any particular lender.
| Income type | Typical evidence | Common treatment |
|---|---|---|
| Permanent salary | Two payslips, YTD | 100% of base, annualised by frequency |
| Overtime (regular, rostered) | YTD + prior year summary | Often 80% of the two-year average; some lenders 100% for essential services |
| Overtime (irregular) | Two years' summaries | Frequently 80% or less, or excluded |
| Casual | 3–6 months' payslips, YTD | Commonly 80% of YTD annualised after a minimum tenure, often 6–12 months |
| Bonus / commission | Two years' evidence | Lower of the two-year average and the latest year; often shaded to 80% |
| Allowances (shift, site, uniform) | Payslips | Taxable, regular allowances usually 80–100%; non-taxable and reimbursements typically excluded |
| Second job | Payslips, tenure | Accepted after a minimum period, often 6–12 months; sometimes shaded |
| Rental income | Lease or agent statement | Commonly 75–80% of gross rent |
The "80%" that recurs above is shading: the lender's allowance for income that might not repeat. It is applied after annualisation — annualise the full figure, then shade. Shading first and annualising second gives the same number, but recording it that way hides the lender's adjustment from anyone reviewing the file later.
A worked example
A client is paid fortnightly. The latest payslip shows base gross of $3,460 and overtime of $410 for the period, with a YTD gross of $28,150 for the period ending 18 October. Prior year's overtime totalled $9,800.
- Base: $3,460 × 26 = $89,960 a year.
- YTD check: 1 July to 18 October is 110 days. $28,150 ÷ 110 × 365 = $93,407 — a little above base × 26, consistent with some overtime in the YTD. The two methods agree closely, which is what you want to see.
- Overtime: the YTD overtime component annualises to roughly $3,450; the prior year was $9,800. Two-year average is about $6,600; the latest year is lower, so a lender taking the lower figure uses $3,450, then shades to 80%: $2,760.
- Assessable income: $89,960 + $2,760 ≈ $92,720. Not the $103,000 the client would quote from base plus last year's overtime.
That gap — nearly $10,000 — is the difference between an approval and a decline at the margin, and it comes entirely from method, not from the client earning less. Run the numbers the lender's way before the client hears a figure.
What this calculator does
It applies the frequency and YTD methods to the figures you enter and shows the annualised result side by side, so you can see whether a single payslip and the YTD agree before you rely on either. Shading is left to you, because it is the lender's rule and it changes. If the figure you are starting from is net rather than gross, run it through the income gross-up calculator first — lenders assess on gross, and annualising a net figure understates income by the client's tax rate.
General information about how income is commonly assessed, not lending advice. Check the current policy of the lender you are submitting to.