Hi,
I’m looking for some guidance on the tax treatment of interest deductibility for investment loan structures I’m considering.
I currently have an interest-only investment property loan in joint names, which is fully offset by funds sitting in the offset account. I’m exploring a couple of options and would appreciate your advice on how the interest deductibility would be treated in each case.
Option 1:
I use the offset funds to pay off the loan in full, and then redraw funds from the loan over time to invest in ETFs under my name only. These ETFs would generate regular income distributions.
- Would the interest on the redrawn amounts be tax-deductible in this case?
- My lender requires that redraw funds first go into the offset account before being transferred to a brokerage account — would this affect the ability to trace the use of funds for tax purposes?
Option 2:
Instead of paying down the loan, I leave the loan in place and use funds directly from the offset account to invest in ETFs.
- In this scenario, would the interest on the investment property loan remain tax-deductible?
- Given the loan is in joint names but the ETFs would be held in my name only, how should the interest deduction be claimed — jointly based on the loan, or solely by me based on the investment ownership?
I’d appreciate any guidance you can provide on the correct treatment for these scenarios.
Thanks very much for your help.
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