When it comes to managing your finances and optimising your tax position, understanding what loan-related costs are tax-deductible can make a big difference. Whether you’re an investor, property owner, or business operator, knowing how the ATO treats associated expenses and refinanced mortgage interest is key to maximising your deductions and avoiding costly mistakes.
What Are Associated Expenses?
Associated expenses are the costs you incur when setting up, maintaining, or refinancing a loan. These include:
- Loan application or establishment fees
- Mortgage discharge and registration fees
- Legal fees relating to loan documentation
- Lender’s mortgage insurance (LMI)
Whether these expenses are tax-deductible depends entirely on how you use the loan.
If the loan is used to produce income — such as for an investment property, shares, or business purposes — these associated expenses are generally tax-deductible.
If the loan is used for personal purposes — such as buying your family home or a personal vehicle — the associated expenses are not deductible.
For example, if you take out a loan to purchase a rental property, your loan establishment fees and lender’s mortgage insurance can be claimed as deductions (LMI over five years).
Refinanced Mortgage Interest: When Can You Claim It?
Refinancing is common, especially when interest rates change or when property owners want to access equity. The deductibility of interest on a refinanced loan depends on the purpose of the loan, not the property that secures it.
If you refinance an existing investment loan purely to replace the old one, the interest on the new loan remains tax-deductible.
However, if you refinance and draw additional funds for personal or non-income-producing purposes, that portion of the loan interest is not deductible.
Example:
You refinance an investment property loan of $400,000 and increase it to $450,000. You use the extra $50,000 to renovate your own home.
- Interest on $400,000 → Deductible (investment purpose)
- Interest on $50,000 → Not deductible (private use)
The ATO looks at the use of the borrowed funds, not just what property is used as security.
Keeping Records Matters
To claim correctly, it’s vital to:
- Keep detailed records of loan statements and how funds were used.
- Split mixed-purpose loans to clearly separate deductible and non-deductible portions.
- Seek professional advice when refinancing or restructuring loans to avoid errors in your tax claims.
Final Thoughts
Understanding the deductibility of associated expenses and refinanced mortgage interest can help you make informed decisions that optimise your tax position and cash flow.
Before refinancing or claiming deductions, consult a qualified tax professional to ensure your claims align with ATO guidelines.
At Certum Advisory, we’re here to help you make confident financial decisions — from loan structuring to tax optimisation.
Contact our team today to discuss how to make your money work smarter for you.
