Loading
attest831(Newbie)Newbie
14 Mar 2026

I’m hoping to understand how interest deductibility works in the following situation.


Structure:

  • A company acts as trustee of a discretionary trust.
  • The corporate trustee holds an investment property in its capacity as trustee.
  • The trustee has a bank mortgage loan over the property.

My client is the director of the corporate trustee and have also made interest-free loans personally to the trustee, documented under a loan agreement.

The sequence of transactions has broadly been:

  1. The corporate trustee borrowed from a bank mortgage loan to acquire an investment property.
  2. My client also advanced funds personally to the trustee (interest-free) under a loan agreement. These funds were used partly to assist with acquisition costs of the investment property, and partly to make repayments on the mortgage loan over time.
  3. As a result of those repayments, the mortgage loan now has available redraw.


The trustee is considering:

  • Redrawing funds from the mortgage, and
  • Using those funds to repay the loan that the trustee owes to my client personally.

My question is about the interest deductibility of the redrawn amount.


In this situation:

  • Would the interest on the redrawn amount remain deductible, because the borrowing ultimately relates to the investment property?
  • Or would the redraw be treated as a new borrowing used to repay a private loan, which could affect deductibility?

Any references to relevant ATO guidance or rulings on redraw/refinancing and tracing of borrowings would be appreciated.

139 views
1 replies
139 views
1 replies

All replies

NikkiATO(Community Moderator)Community Moderator
17 Mar 2026

Hi @attest831,


Interest deductibility depends on how borrowed money is used, not what the original loan was for. When money is redrawn from a loan, it’s treated as a new borrowing, so the use of that redraw needs to be considered on its own.


The examples in legislation highlight that outcomes depend on the facts of each case, including whether the new borrowing continues the same income‑producing purpose as the earlier borrowing, or whether it’s used for something different.


Where related‑party loans are involved, there isn’t a set a single rule that applies in every situation. Instead, the focus is on being able to clearly identify and trace how the funds were used. If funds have been used for more than one purpose, apportionment or other administrative steps may be needed.


Because there’s no guidance that deals directly with this exact type of arrangement, the tax outcome can depend on the specific facts and how the transactions are documented. Seeking professional advice or applying for a private ruling would be best for certainty.

Featured articles

Finding your TFN

6 Feb 2026 · 4 min read time

Linking your myGov account to the ATO

24 Aug 2025 · 3 min read time

Spouse details and your tax return

15 Apr 2026 · 3 min read time

Top liked users

  1. Bruce4Tax

    (Taxicorn)

    3245 likes

  2. Taxduck

    (Taxicorn)

    2037 likes

  3. PayrollDeanne

    (Taxicorn)

    806 likes

  4. YellowPotato

    (Taxicorn)

    513 likes

  5. knaresbro

    (Devotee)

    358 likes

Top contributors

  1. Bruce4Tax

    (Taxicorn)

    10370contributions

  2. Taxduck

    (Taxicorn)

    4722contributions

  3. PayrollDeanne

    (Taxicorn)

    2040contributions

  4. YellowPotato

    (Taxicorn)

    1327contributions

  5. YEP

    (Devotee)

    837contributions

Loading
Interest deductibility when redrawing mortgage to repay director loan | ATO Community