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StilTaxConfused(Initiate)Initiate
13 May 2024

The mortgage on the house I currently live in currently stands at $1000 outstanding balance. Because I made extra payments, directly into the mortgage ie not into an offset account.

If I withdraw only the amount I paid in extra on the mortgage eg $800 000 and then used that to purchased another property for us to live in, 


I then let the current home.

Would the interest on the $800 000 be a tax deductable expense? Given that the mortgage was incurred to purchase the property.

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YEP(Devotee)Devotee
13 May 2024

No, you can not claim the interest on the $800,000 withdraw because you are using the fundsn to purchase another residence for yourself, and it is purley for private purposes.


Your withdraw of $800,000 has no connection to your current home which is the intended investment property.


As for the $1,000 loan that is currently oustanding on your current home which is the intended investment property, you would be able to claim the interest on that only because that loan is connected directly to that property if it is going to be genuinely rented out or made available for rent.


I do not think there is anyway around this either.

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BrandyN11(Newbie)Newbie
13 May 2024

In general, the interest on a mortgage for a property you rent out can be tax-deductible. However, if you withdraw extra payments made on your mortgage to buy another home, this may not apply. It’s best to consult a tax professional for advice specific to your situation.

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YEP(Devotee)Devotee
13 May 2024

No, you can not claim the interest on the $800,000 withdraw because you are using the fundsn to purchase another residence for yourself, and it is purley for private purposes.


Your withdraw of $800,000 has no connection to your current home which is the intended investment property.


As for the $1,000 loan that is currently oustanding on your current home which is the intended investment property, you would be able to claim the interest on that only because that loan is connected directly to that property if it is going to be genuinely rented out or made available for rent.


I do not think there is anyway around this either.

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StilTaxConfused(Initiate)Initiate
14 May 2024

OK, I do not like the answers. Please help me understand, what to do in the future.


If I had paid the extra money into an offset account, to the balance of $790 000, and the mortgage is then $800 000. I can take the money from my offset account, buy the home for me to live in and then let my current home. Now the interest on the $800 000 balance is a tax deductible?

StilTaxConfused(Initiate)Initiate
15 May 2024

I assume my statement regarding the offset account is correct as there have been no responses.



Back to my initial question, I would like to ask why the interest would not be tax deductible.

The property is my main residence, therefore zero interest is deductible, if I withdraw extra paid funds, thus should not be a problem.


The property only becomes a rental unit after I have taken the redraw.

Therefore at the time the property becomes a rental unit the loan amount has been $800 000 for several months.

YEP(Devotee)Devotee
16 May 2024

@StilTaxConfused

The answer further questions above is that under each new senario the interest is not tax deductible because you are using the loan to buy a property for yourself to live in.


It makes no difference whatsoever that you have used your first home that is to become the rental property as collatoral.


If your having difficulty understanding this then may I suggest you write to the ATO and ask for a private ruling so that you can speak to one of the ATO technical officers about all this and they will provide you with a written response so you get it right the first time.


https://www.ato.gov.au/about-ato/ato-advice-and-guidance/ato-advice-products-rulings/private-rulings/applying-for-a-private-ruling

StilTaxConfused(Initiate)Initiate
20 May 2024

@StilTaxConfused

So given the information above.


Does this mean I can take the $800 000 from my family home mortgage, use all $800 000 to purchase a rental unit and now the interest on the $800 000 in my family home mortgage becomes a tax deductible?

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