[REVIEW: to be reviewed by a registered tax agent — arranged by ]

Investment loans are usually set up with a redraw facility, and it’s common to dip into one for something unrelated to the property — a car, a holiday, a bill that lands at the wrong time. Whether that changes what you can claim at tax time depends on one thing: what the money was actually used for.

Does redrawing for personal use affect my interest deduction?

Generally, no — you can’t claim a deduction for the interest on the part of an investment loan you redraw and spend on yourself. The Australian Taxation Office ties interest deductibility to how the borrowed money is used, not to which property secures the loan or what the loan is labelled. Interest on the funds still doing their job — buying, holding or earning income from the rental property — remains deductible in the usual way. Interest on funds you’ve redrawn and spent privately is not, even though it’s coming out of the same loan account.

This is exactly the mechanism behind negative gearing: the ATO’s rental properties guide describes it as occurring “when you buy a rental property with the assistance of borrowed funds and the rental income is less than the deductible expenses (including interest on the borrowings).” Interest is only one of those deductible expenses, and the same guide makes clear that ordinary deductibility rules still narrow what counts as deductible before that calculation happens — including apportionment where a loan is used partly for private purposes. A redraw for personal spending is a textbook case of that.

Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.

Why does what the money is used for matter more than the loan account?

It helps to separate two things that feel like the same thing but aren’t: the security for a loan, and the purpose the borrowed money is put to.

• The security is the asset the lender can claim if you default — commonly the rental property itself, sometimes another property too.
• The purpose is simply what you did with the cash once it landed in your hands or your account.

A loan can be secured entirely against your rental property and still contain money used for something completely private. The security doesn’t change; the purpose of that particular dollar does. Tax law follows the dollar, not the mortgage document.

This matters because a redraw facility sits inside the same loan account as your original investment borrowing. Draw on it for a bathroom renovation at the rental and the new interest is still investment-related. Draw on it for a family holiday, and from that point the loan contains two different purposes mixed together — commonly described as a mixed-purpose loan. Nothing about the loan’s paperwork announces the split; it’s something you (and, eventually, your tax return) have to track.

What happens when a loan mixes investment and personal amounts?

Once a loan contains both investment and private-use money, the interest charged on it has to be apportioned — split between the deductible and non-deductible portions — rather than claimed in full. As at July 2026, the ATO’s own worked example for exactly this scenario — a redraw taken partway through a loan’s life — sets out the method: compare the rental-property portion of the loan balance against the total loan balance immediately after the redraw, apply that ratio to the interest accruing from that point on, and keep applying the same fixed ratio to every later interest charge for the life of the loan. It needs to be recalculated only if the mix changes again — a further private draw resets it. Critically, you can’t accelerate your way out of it: the ATO is explicit that you can’t direct extra repayments at just the private portion to clean it up faster — all loan repayments, including of principal, are apportioned across both portions in that same fixed ratio.

Because of this, some investors choose to keep any personal borrowing on a separate loan or a separate split within the same facility, so the investment interest stays easy to trace without needing to reconstruct a mixed history later. That’s a structural choice with trade-offs either way, not something this article recommends — a broker or adviser can talk through what a split facility would mean for your own loan.

How does this interact with negative gearing — now and from 1 July 2027?

Once you’ve worked out the deductible portion of interest, it feeds into the same negative gearing calculation as your other rental deductions. What happens to a resulting loss differs depending on when you’re asking:

	Current law (2026–27 income year)	From 1 July 2027 (2027–28 income year onward)
Net rental loss (deductible expenses, including apportioned interest, exceed rental income)	No general dollar cap. The loss can be offset against other income (salary, wages, business income) in the same return; if other income doesn’t absorb it, it carries forward.	New residential rental deductions are quarantined under new s26-155 ITAA 1997 (enacted, Act No. 49 of 2026). The loss can no longer offset other income — it’s usable only against residential capital gains or carried forward against future residential rental income.
What’s grandfathered	Not applicable	Interests acquired before 7:30pm AEST on 12 May 2026 keep the current-law treatment. Whether a newly built (“new”) residential dwelling is exempt from the quarantine still depends on a ministerial instrument that had not been made as at this update.

Both columns are current, enacted settings as at July 2026 — not a prediction of where the law might go. If your loan mixes investment and private-use amounts, apportioning the interest correctly is what determines the deductible expense figure that feeds into whichever column applies to your circumstances.

Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.

What records should I keep?

Whichever side of a redraw you’re on, the ATO’s expectation is that you can show — not just assert — how much of the loan relates to the rental property. That generally means keeping the original loan documents, a record of every redraw (date, amount, what it was for), and enough of a paper trail to reconstruct the investment/private split at any point in time. As at July 2026, the ATO sets this at five years for ongoing rental income-and-expense records — generally five years from the date you lodge the tax return covering that year, extended further if you’ve claimed a decline in value on an asset, if a capital gains tax event on the property is still possible, or if you’re in a dispute with the ATO. This is separate from the record-keeping duration for capital gains tax purposes specifically, where property records are kept for the full ownership period plus at least five years after you dispose of the property.

A quick word on structure

None of the above changes depending on whether you hold the property individually, through a trust, a company or a self-managed super fund — the purpose test applies to the borrowing itself. What differs by structure is how any resulting loss or gain is taxed once it’s calculated, which is a separate question from whether the interest was deductible in the first place.

Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.

Property investing more broadly — including how loans, income and costs fit together — is covered in our guide to property investment in Australia. If you’re weighing up how a negatively geared property behaves against one that’s cash flow positive, our guide to cash flow positive vs negatively geared property walks through that trade-off in more detail.

For investors who’d rather sidestep loan and redraw bookkeeping altogether for part of a portfolio, fractional ownership is a different structure worth knowing about. MyBrix’s investor pathway lets you buy a fractional interest (“Brix”) in a property without taking out a mortgage yourself. The tax treatment of Brix distributions still depends on the structure of the relevant listing — that’s its own question for a registered tax agent, not something this article resolves.