Your accountant decides how your interest is treated for tax. How the loan is set up decides how much they have to untangle first. Getting the structure right at the start is the part a broker can help with.
The general principle
The Australian Taxation Office’s general position is that whether interest may be deductible depends on what the borrowed money is used for, not on which property secures the loan. Money borrowed to buy an income-producing investment is treated differently from money borrowed for your own home or personal spending. You can read the ATO’s guidance oninterest expenses for rental properties.
So the aim of a tax-aware structure is simple: keep a clear, provable line between debt used for investment and debt used for anything else.
Structural choices that keep the line clear
- Separate splits for separate purposes. One loan split per purpose, so each split carries a single, traceable use of funds.
- Offset rather than redraw for spare cash. Money in an offset is still your savings. Paying down a loan and redrawing it later can count as new borrowing for whatever you spend it on. See Offset or redraw?
- No mixing. Avoid paying personal costs from an investment split, or topping up one loan to cover another purpose.
- Interest-only where it fits. Some investors pair interest-only investment debt with paying down their home loan faster. Whether that suits you depends on cash flow, lender policy and your accountant’s view.
- Plan for a future move. If your home may become a rental one day, how you hold savings now matters later.
For portfolios, see Structuring your loans when you own more than one property.
Debt recycling, in plain terms
Debt recycling is a strategy where home loan debt is paid down and an equivalent amount is borrowed again in a separate split to invest. The intent is to gradually shift debt from personal to investment purposes. It needs careful loan set-up, clean records and investment decisions that suit you, and it carries investment risk.
Our part is the lending: the splits, the limits and a set-up your accountant can follow. Whether debt recycling is right for you, and how it’s treated for tax, is a question for your accountant or registered tax agent, and for a licensed financial adviser where investment advice is involved.
How we work with your accountant
Ankush is a CPA, so he speaks your accountant’s language. We share the proposed structure with them before anything is lodged, set up the splits they recommend, and give you a clear record of what each split is for.