David McDonald
Contact West Carr & Harvey

Redrawing on investment loans – what it means for you

If this is your first rodeo with an investment property, you may have learned that the interest charged on investment loans is tax deductible. Hooray! What you may not yet know is that if you choose to redraw on your investment loan, what you do with those redrawn funds can make things complicated from a tax perspective.

How do we keep it simple?
Redrawing on the investment loan to cover costs for improvements to the property like renovations, repairs and maintenance means that the interest charged on the loan should continue to be tax deductible. Basically, any funds from a redraw on an investment loan should only be used on the relevant investment.

When does it get complicated?
If you decide to redraw your loan for other purposes, such as to buy something fun like a boat, a holiday or a new car, the interest on the purchase amount of these fun items will be impacted and the interest on the entire loan can become complicated. To avoid these complications, we recommend keeping the fun stuff separate from your investment loans.

ATO monitoring
The ATO has many mechanisms in place to track changes in investment loan scenarios such as these. Therefore attempting to claim the interest on your holiday for this purpose is likely to be flagged.

What should we do?
If you have any concerns or questions about the tax implications of your investment loan, please feel free to contact us.