Can I claim interest deductions if I refinance to release equity for renovations?
Usually not if the renovation is on your own home — because interest deductibility follows the purpose the money is used for, not the equity you draw it from. Releasing equity to renovate your owner-occupied home is a private purpose, so that interest is generally not deductible. If the renovation is on an income-producing investment property, the interest on the released equity generally is deductible. The property the loan is secured against does not decide it — the use does.
The trap most brokers miss
The trap is assuming that because the equity came from an investment property, the interest must be deductible. It is the reverse: draw equity from your investment loan to renovate your own home, and that interest is not deductible — and it can contaminate the rest of the loan if not split. Getting this wrong quietly costs deductions every year.
What you actually need
- A clear purpose for the released equity — private or income-producing
- A separate loan split so deductible and non-deductible portions stay clean
- Records evidencing how the funds are used
- Confirmation of the treatment with your accountant
Illustrative scenarios
Teaching examples built from typical situations to show how we approach the problem. Numbers only, never names.
Equity release for renovations
An owner wanted to redraw $80,000 from their home loan to renovate, and asked whether the interest would be deductible.
Interest on money redrawn for a private renovation on an owner-occupied home is generally not deductible — a common and costly misunderstanding.
We explained that deductibility follows use, set expectations honestly, and where an investment purpose was involved structured a separate split to keep any deductible portion clean.
The owner proceeded with a clear, honest understanding of what was and was not deductible — an illustration of avoiding a costly assumption before it happened.
Illustrative example only. This is a teaching scenario built from typical borrower situations to show how we approach the problem — not a record of a specific client, and not a prediction of your result. Your outcome depends on your lender, your financials and current lending policy.
Refinance and interest deductibility
An investor wanted to refinance an investment loan and release $100,000 of equity, unsure whether it would affect the interest deductions on the existing loan.
Deductibility follows the PURPOSE the borrowed money is used for, not the property it is secured against — mixing the equity release with the investment loan risked contaminating the deduction.
We structured the equity release as a separate split and documented its purpose, so the deductible and non-deductible portions stayed cleanly divided.
The refinance proceeded with the deduction trail kept clean — an illustrative example of structure protecting a tax position, discussed with your accountant.
Illustrative example only. This is a teaching scenario built from typical borrower situations to show how we approach the problem — not a record of a specific client, and not a prediction of your result. Your outcome depends on your lender, your financials and current lending policy.
Why this answer is worth trusting
Led by James Chee — CPA, Registered Tax Agent and mortgage broker (Corporate Authorised Credit Representative 517980 of Global Mutual Funds Pty Ltd, ACL 222640). Bound by the Best Interests Duty and comparing a 40+ lender panel. Credentials can be checked on the public ASIC, ABR and TPB registers.
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