23rd July 2008

Dear Investor,

Avoiding common mistakes

The ATO has recently provided a summary that outlines some common mistakes made in claiming rental property borrowing expenses. Ensuring that these mistakes are avoided when claiming deductions is important because it could also help to reduce the chances of being selected for an audit or review.


Borrowing expenses are incurred when a loan is taken out. These expenses include:

  • stamp duty charged on the mortgage
  • loan establishment fees
  • title search fees charged by the lender
  • cost of preparing and filing mortgage documents
  • mortgage broker fees
  • fees for a valuation required for loan approval, and
  • lenders mortgage insurance (taken out by the lender and billed to the borrower).


There are several common mistakes made when claiming borrowing expenses:

Claiming a deduction for stamp duty on property title transfer

Stamp duty on the transfer of the title of the property is not a borrowing expense. It may however, be included in determining the cost base for capital gains tax (CGT) purposes.

Borrowing expenses claimed in full in the year incurred

Borrowing expenses that exceed $100 need to be spread over five years or the term of the loan, whichever is less. If the total deductible borrowing expenses are $100 or less, they may be fully deductible in the income year they are incurred.

Claiming a deduction for borrowing expenses in full where a loan used to purchase a rental property is also partly used for private purposes

Some taxpayers have taken out a loan to purchase a rental property and have used part of the proceeds for a private purpose, such as purchasing a vehicle. In these circumstances, borrowing expenses can only be claimed against the part of the loan that relates to the rental property, and not the portion used for other private purposes. Some taxpayers have dangerously formed the view that holding property is one of the last ways that the ATO allows individuals to enjoy some tax "perks". This is simply untrue and to adopt such a view places taxpayers in a precarious position.


The ATO has maintained an active review programme focusing on taxpayers who derive income from rental properties. A number of mistakes are routinely made by property owners that need to be prevented to avoid being made the subject of closer scrutiny. These mistakes include:

  • overstating interest on loans taken out to purchase or renovate investment properties where part of the loan has been used for private purposes.
  • claiming the cost of improvements as a repair instead of a claim for capital works.
  • claiming full year deductions for a property that has been used for free by family or friends for part of the year.
  • claiming full cost of inspection when that visit is combined with a holiday.
  • redrawing on an existing loan created for income producing purposes and using all or part of the proceeds for private purposes, claiming the interest deduction for the full amount.
  • claiming deductions for properties that are not used for income producing purposes, such as a holiday house.

Best regards,
Chris Andrews


> Home
> About Us
> PDS - Want to invest?
> FAQs
> Subscribe Free
> Independent Ratings
> Mortgage Shopping List

Chris Andrews
Head of Funds Management

t  +61 3 8610 2811
e  candrews@latrobefinancial.com.au

Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.

La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

Copyright 2010 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial. Disclaimer

* La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Mortgage Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. You can get a copy of the PDS by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you.
(1) The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund, and may achieve lower than expected returns. Past performance is no guarantee of future performance. Investors risk losing some or all of their principal investment.
(2) Withdrawal rights are subject to liquidity and may be delayed or suspended.
(3) As at 30/11/10 the La Trobe Australian Mortgage Fund had received a Morningstar RatingTM of 5 stars. The Morningstar Rating is an assessment of a fund's past performance - based on both return and risk - which shows how similar investments compare with their competitors. A high rating alone is insufficient basis for an investment decision. © 2010 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the above data or content to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice has been prepared by Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892 (a subsidiary of Morningstar, Inc.), without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant product disclosure statement, before making any decision. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/fsg.pdf
(4) 3.75 star rating out of a possible 5 star rating indicates that Adviser Edge believes that La Trobe has performed in line with its peers and exceeded its peers on some fronts.
(5) The Standard and Poors rating of 4 out of 5 stars indicates that S + P has high conviction that La Trobe Financial will consistently generate risk-adjusted fund returns in excess of its relevant investment objectives and relative to its peers.
(6) The award was given to the La Trobe Australian Mortgage Fund, Pooled Mortgages Option.
Research Ratings are subject to change. To view the latest research information please visit www.adviseredge.com.au or www.standardandpoors.com.au. Ratings issued by Adviser Edge Investment Research AFS Licence No. 236783 and Standard & Poors Information Services (Australia) Pty Ltd AFS Licence No. 258896 are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. The ratings are only one factor to be taken into account in deciding to invest. Research Houses receive a fee from La Trobe for rating the product. The Adviser Edge rating is generally a measure of the rated entity's capacity to meet its repayment obligations in all market circumstances.
IMPORTANT: This message, together with the La Trobe Financial website (www.latrobefinancial.com.au) and all its contents have been prepared for general information only and should not be taken as legal or financial advice, and as such the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before acting on any information present on this message or the La Trobe website.