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ChrisA(Newbie)Newbie
29 May 2026

Scenario


  1. Take a top up loan against my owner-occupied property for $1m
  2. Place these funds in a separate offset account linked to this new loan
  3. Loan is Principal and Interest
  4. Principal and Interest minimum monthly repayments made using these funds in the offset
  5. When I find an investment property to purchase in a year, the balance in the offset has reduced to $900k

Question:

  1. Will I be able to deduct 100% of the interest expense associated with the $900k (remaining loan balance) to purchase the investment property against my rental income? or
  2. Will I only be able to deduct 90% of this interest expense incurred from the $900k (remaining loan balance) for the life of the loan?

If the answer to Q1 is Yes, I can look at getting a Principal and Interest Loan, however, if the answer to Q2 is yes, then I would like at getting an Interest Only loan where I don’t have to make any minimum monthly repayments as the there will be no interest to pay as the loan will be 100% offset until I purchase the property.

20 views
1 replies
20 views
1 replies

All replies

NikkiATO(Community Moderator)Community Moderator
1 June 2026

Hi @ChrisA,


It depends on whether you’re simply withdrawing from an offset account or using a redraw facility. Because they are treated differently.


Offset account:

Money in the offset does not reduce the loan balance. When you later use those funds to buy an investment property, the borrowed funds are taken to be used for that investment, so interest is generally deductible on the amount used.


Redraw facility:

Repayments reduce the loan balance. If you later redraw those amounts, it is treated as new borrowing, and the deductibility depends on the purpose of what you redraw.


Interest deductibility follows the use of the borrowed funds for redraw arrangements. If you only use $900k to acquire the investment property, the interest relates to that $900k – not the original $1m.

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Can I Claim Interest Deduction on Investment Loan? | ATO Community