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Re: Redraw on Investment Property Loan - Examples for clarification

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Newbie

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Hi,

With respect to redrawing from an investment property loan, I have read the tax ruling and the examples provided by the ATO and I just want to make sure I understand it correctly by confirming the following simple examples.
The intent here is to confirm examples of what you can spend the redrawn money on such that the interest on the investment property loan remains fully tax deductible.


For these examples assume 'Bob' has an investment property loan and is paying $2000 per month in repayments.
Bob has previously made extra repayments and has $50,000 available to redraw.


Please confirm that the following examples result in the interest on the loan remaining fully tax deductible:


1) Bob is having a cash flow problem and redraws $2,000 to make a repayment on the investment property loan (he may do this multiple times)
2) Bob redraws $1,500 to pay for repairs to a leaking water pipe in the investment property
3) Bob redraws $6,000 to have the investment property repainted
4) Bob redraws $20,000 for a new kitchen in the investment property
5) Bob redraws $950 to buy some new blinds for the investment property
5) Bob redraws to pay for insurance, rates and agent fees for the investment property


You can see where I am going with this.

After reading how complicated things can get when you redraw for other purposes (even for other investment purposes) I want to know that if things are kept simple in that the redraw facility on the investment property loan is used solely for the investment property, would that mean the interest on the loan would remain fully tax deductible?


Could the ATO please confirm?


Regards

1 ACCEPTED SOLUTION

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Best answer

Community Support

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Hi @AndyV,

 

Thank you for your enquriy. What we look at is the use of borrowed funds. The deductibility of interest is determined by the purpose of the loan and how the borrowed funds are used.  Any security that has been given for the loan is irrelevant.

Examples of deductible interest include where loan monies are used to:

  • purchase income-producing assets

  • meet business expenses

  • purchase property from which income is to be derived

  • finance business operations generally.

You can use the website for further information including interest expenses via this link. 

 

Hope this helps.

 

Regards,

Jodie2.  

2 REPLIES 2
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Best answer

Community Support

Replies 0

Hi @AndyV,

 

Thank you for your enquriy. What we look at is the use of borrowed funds. The deductibility of interest is determined by the purpose of the loan and how the borrowed funds are used.  Any security that has been given for the loan is irrelevant.

Examples of deductible interest include where loan monies are used to:

  • purchase income-producing assets

  • meet business expenses

  • purchase property from which income is to be derived

  • finance business operations generally.

You can use the website for further information including interest expenses via this link. 

 

Hope this helps.

 

Regards,

Jodie2.  

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Devotee

Replies 0

Yes to all 6 "Bob".

 

If the redraw is related to the operation of the investment property, then the interest is deductible on the redraw. This issue is when you redraw to buy a car (or any other non-investment related purpose).