Imagine how you would feel if you borrowed $200,000 to invest in shares or property. Then, at tax time, your accountant tells you that the interest on the loan is not tax deductible — all because the funds were first transferred to your personal savings account before going to your agent or investment account.
It’s a frustrating scenario but a common mistake with costly consequences.
Why This Happens
Under Australian tax law, interest is only deductible when the borrowed funds are used directly to generate assessable income. If the funds pass through a personal or mixed-use account, the ATO may question whether the money was truly used for investment purposes.
Even if your intentions were clear, the flow of funds matters.
How to Avoid This
- Transfer funds directly from your loan to the investment or broker account.
- Avoid using personal savings accounts as an in-between step.
- Keep clear records of all transactions.
- Speak with your accountant before moving funds.
The Bottom Line
To keep your interest tax-deductible, the structure and fund flow must be clear from the start. A simple detour can turn a deductible loan into a costly error.