If I pay down my home loan then redraw, can I still claim the interest?
It depends entirely on what you redraw the money for — not on the fact that it was your own money you paid in. When you redraw, the tax office treats it as new borrowing, and the deductibility of the interest follows the purpose of that redraw. Redraw to invest, and the interest can be deductible; redraw for a car, holiday or your own home, and it is not — even though you are pulling out money you previously repaid.
The trap most brokers miss
The trap is the redraw-and-contaminate mistake on an investment loan. If you park spare cash in an investment loan then redraw it for private use, you reduce the deductible balance permanently and mix purposes in one account. This is one of the most common and costly deductibility errors — and it is why an offset account is often the better tool than redraw for an investment loan.
What you actually need
- An understanding that a redraw is treated as new borrowing
- Clarity on the purpose of any redraw before you make it
- Consideration of an offset account instead of redraw for investment loans
- Advice from your accountant before mixing purposes
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.
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