Deductions - is interest on redraws fully tax-deductible?

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17 Mar 2026

Hi everyone,

I would appreciate some community guidance on a proposed debt structure to ensure I am establishing a clear paper trail for tax deductibility under the "use of borrowed funds" test.

Current Setup:

I own an investment property (IP) with its own separate loan.
I recently drew $30,000 in equity from my PPOR into a brand-new, separate loan account.
This new $30k loan is interest-only.
The $30k cash is currently sitting in an offset account linked to this new loan, so the balance is fully offset and no interest is being charged.

Proposed Investment Plan: I want to use these funds for two income-producing purposes:

$10,000 to install a battery on the IP (which I understand will be depreciated over its effective life).
$20,000 to purchase a Vanguard high-yield ETF.

Execution Strategy: To ensure the interest is deductible, I plan to:

Transfer the $30,000 from the offset account directly into the loan account, effectively paying the loan balance down to zero (leaving a nominal $1 balance so the bank doesn't close the facility).
Redraw $10,000 directly from the loan account to the battery installer.
Redraw $20,000 directly from the loan account to my Vanguard brokerage account.

My Questions:

Does this pay-down-and-redraw method successfully establish the correct paper trail to make the interest on both redraws fully tax-deductible?
Are there any issues with holding the $30k loan as a single "mixed-purpose" investment facility, provided I easily apportion the interest at tax time (1/3 to the IP schedule, 2/3 to the share investment schedule) and never draw from it for personal use?

Thank you in advance for your insights.

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