Investment loan, private spending: what happens to interest?
A rental property securing a loan does not make every dollar of interest deductible. The Australian Taxation Office (ATO) looks at how the borrowed money is actually used. If part of the borrowing pays for private spending, the loan can become a mixed-purpose loan and the interest may need to be apportioned.
The ATO's rental-property guidance explains that interest on money borrowed for private purposes is not deductible merely because a rental property is used as security. Its ruling on line-of-credit and redraw facilities also treats a redraw as a new borrowing whose purpose must be identified.
A $100,000 funds-use example
Illustration only: one $100,000 draw sends $80,000 to repairs for an income-producing rental property and $20,000 to a personal car. The borrowing now has both income-producing and private uses.
This does not promise an 80% deduction. The actual treatment depends on the transaction trail, the property's rental status and the applicable tax rules. Repayments and later redraws can also affect the calculation, so records may need to be maintained for the life of the loan.
Three checks before redrawing or refinancing
1. Record where each dollar went — retain bank statements, invoices, contracts and settlement records that connect the borrowing to its actual use.
2. Retrace every redraw or refinance — moving a balance to a new facility does not erase the original purpose of the borrowed funds, and a new private redraw can change the loan's mix.
3. Separate purposes before borrowing — where practical, discuss distinct loan splits before funds are used so investment and private transactions are easier to trace.
Keep lending structure and tax advice in their proper roles
Confirm tax treatment and any interest apportionment with a registered tax adviser. BV Finance can help compare loan splits, redraw settings and repayment options so the proposed lending structure is clear before an application or refinance proceeds.
Sources and practical tools
General information only. This is not financial advice. Loan options and eligibility depend on your personal income, liabilities, assets and lender assessment criteria.
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