Are private mortgage and caveat loan fees tax deductible?

In most cases, yes. When a private mortgage or caveat loan funds your business, the costs of setting it up are generally deductible as borrowing expenses, and the interest is deductible separately. The catch is timing: borrowing expenses over $100 are spread over five years or the loan term, whichever is shorter, so they don’t all land in one tax year.

That timing rule matters more for private property loans than for a typical bank loan, because private loans tend to be short. A six or twelve-month caveat loan can mean the whole set-up cost is claimed inside a single financial year. A loan that straddles 30 June splits the claim. Here’s how it fits together.

What counts as a borrowing expense on a property-secured loan?

The ATO describes borrowing expenses as the costs you incur to take out a loan. Its borrowing expenses guidance is written for rental property owners, but it gives a clear list of what typically counts:

• loan establishment or set-up fees
• the lender’s title search charge
• costs of preparing and filing mortgage documents, including solicitor fees
• mortgage broker fees
• valuation fees, where the valuation is required for loan approval
• stamp duty charged on the mortgage itself
• lender’s mortgage insurance billed to you

On a private second mortgage or caveat loan, the first four or five items are the ones you’ll usually see on the settlement statement. Read that statement line by line, because it’s the document your accountant will work from.

The same page is just as clear about what isn’t a borrowing expense: the amount you borrow and your principal repayments, interest (which is claimed separately), stamp duty on transferring a property’s title (a capital cost), and insurance that pays out the loan if you die, become disabled or lose your job (a private expense).

How does the five-year rule work on a short private loan?

If your total borrowing expenses are $100 or less, the ATO lets you claim them in full in the year you incur them. Above $100, you claim them over five years or over the term of the loan, whichever is shorter.

Most private property loans run for months, not years, so the loan term is almost always the shorter period. That changes the picture compared with a 25-year bank loan, where set-up costs drip through over five tax returns.

Loan scenario	How the borrowing expenses are claimed
Fees of $100 or less	In full, in the year incurred
6-month caveat loan, all inside one financial year	Across the term, which lands entirely in that year
12-month second mortgage starting in March	Split between the two financial years the term covers
3-year private first mortgage	Spread over the three-year term
Any loan repaid early	Remaining balance claimed in the year it’s repaid

That last row is worth remembering. The ATO says that if you repay sooner than the loan term, or within five years, you can deduct whatever is left of the borrowing expenses in the year the loan is paid out. Refinancing a short-term private loan back to a bank, which is a common exit, usually triggers exactly that.

Does it matter that the loan is secured on my home?

This is the question owners ask most, and the answer is reassuring: the security doesn’t decide the tax treatment. The use of the money does.

The ATO’s interest expenses guidance includes an example where a loan is secured against a rental property but used to buy a new home. The interest isn’t deductible, because the borrowed money isn’t producing income. The principle runs both ways. A second mortgage over your family home that pays for stock, wages, equipment or a tax bill in the business is judged on that business use.

Two practical consequences:

1. Keep the money traceable. Pay loan proceeds into the business account and use them for the stated purpose. Mixing them with personal spending forces an apportionment.
2. Mixed-purpose loans get split. The ATO requires interest on a loan used partly for private purposes to be separated. The same logic applies to set-up costs: only the business portion is a business deduction.

If you’re weighing up which kind of property loan fits, our page on private mortgages and second mortgages explains how they sit behind your existing home loan.

What about interest on a loan used to pay the ATO?

Many property-secured business loans are taken out to clear a tax debt, so this part matters.

From 1 July 2025, the ATO’s interest charges are no longer deductible. The ATO’s summary of the change says any general interest charge or shortfall interest charge incurred on or after 1 July 2025 isn’t deductible, regardless of which year the debt relates to.

Interest on money you borrow is a different thing. The ATO’s list of business operating expenses includes interest on money borrowed for income tax obligations, employer super contributions, or late payment or lodgment of tax. So for a business carrying a tax debt, the comparison has shifted: the ATO’s own interest charge is now an after-tax cost, while the business loan used to clear it may still produce a deduction. Your accountant should confirm how that applies to your entity and your debt. Our page on ATO tax debt loans covers the funding side.

Ready to see what a property-secured loan could look like for your business? Start a quick enquiry and a real person will call you.

Which entity gets the deduction?

The deduction belongs to the borrower that uses the money to earn income. That sounds obvious, but property loans often involve more than one party:

• The property is owned personally, the business is a company. If you borrow personally and lend the money to the company, the tax position is different from the company borrowing directly with you as guarantor and mortgagor. Talk to your accountant before you choose the structure.
• The property sits in a family trust. The trust may be the mortgagor while the trading company is the borrower. The loan documents should match how the money actually flows.
• Two owners, one business. If a co-owner signs the mortgage but isn’t involved in the business, the deduction still follows the borrower and the use of funds.

Getting the borrower right at the start costs nothing. Unwinding it later can be messy.

A worked example

Illustrative only. A landscaping business, run through a company, needs $150k to buy two trucks’ worth of equipment and cover a slow winter. The director owns an investment unit with no loan on it and takes a 12-month private first mortgage over the unit, with the company as borrower and the director as mortgagor and guarantor.

The settlement statement shows $6k of set-up costs: an establishment fee, the lender’s legal and document fees, a valuation and a title search. The loan starts on 1 March.

Because the term is 12 months, the $6k is spread across the term. Four months fall before 30 June, so roughly a third is claimed in the first financial year, and the balance in the next. When the company refinances to a bank after nine months, the unclaimed remainder is deducted in the year of repayment. Interest is claimed separately, as it’s incurred, because the money went into the business. A guide to using a rental or investment property as security covers the property side of a deal like this.

A checklist for tax time:

• Keep the settlement statement and the loan contract with your tax records.
• Note the loan start date, term and repayment date.
• List each set-up cost separately: establishment, legal, valuation, title search, broker.
• Record how the loan proceeds were spent, ideally from the business bank account.
• Flag any private use so it can be apportioned.
• Tell your accountant if the loan was repaid or refinanced early.

Thinking about borrowing against property for the business?

If you’ve read this far, you’re already thinking about the loan the right way: what it costs, when the costs land and how the money will be used. That’s exactly the conversation we like to have. We arrange first mortgages, second mortgages and caveat loans from $20k to $5m against residential or commercial property, for business purposes only, and we look at tax debt and imperfect credit case by case.

The enquiry takes about 60 seconds, and there’s no credit check when you first enquire. Your details aren’t sent to a pile of lenders, so you won’t be chased by strangers. A real person reads what you’ve told us, looks at your property and purpose, and calls you to talk it through. Please fill the form in accurately, including the property value and any loan already on it, so we can point you to the right structure first time.

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