Investment-loan refinancing needs an extra layer of care because tax deductibility generally follows the use of borrowed funds. Simply securing a loan against an investment property does not make every dollar of interest deductible. If private and investment borrowings are mixed in the same account, ongoing apportionment can become complicated.
- Tax deductibility generally follows use of funds
- Keep investment and private borrowings separate
- Map old splits to new splits during refinance
- Treat redraws carefully
- Get tax advice before restructuring
Preserve clear loan purpose
Where possible, keep investment debt in dedicated loan splits and avoid depositing or redrawing private funds through the same account. This makes the history of the borrowing easier to evidence.
When refinancing, map each outgoing loan split to the replacement split rather than collapsing everything into one large facility without a reason.
Redraw can change the character of debt
ATO guidance treats a redraw as a further borrowing, with deductibility depending on what the redrawn money is used for. If a redraw from an investment loan is used privately, the account can become mixed purpose.
Once mixed, simply paying money back into the loan does not necessarily allow you to choose that the private portion was repaid first.
Coordinate broker and tax adviser
A broker can structure splits and lender facilities, but your accountant or tax adviser should confirm the tax consequences of your specific history and intended use of funds.
Do that before settlement where possible, because restructuring after funds have been mixed may not restore the position you intended.
Frequently asked questions
If an investment property secures the loan, is all interest deductible?
No. The use of borrowed funds is a key factor, not just the security property.
Can refinancing destroy deductibility?
A straight refinance does not automatically do so, but mixing purposes or using additional borrowings privately can create problems.
Can I fix a mixed-purpose loan later?
It can be difficult. Obtain tax advice before attempting to restructure.