Refinancing an investment property: keep the tax trail intact

A new lender does not explain the old balance

When a refinance is being considered, prepare a record of how the existing borrowing arose. The current balance may reflect the original purchase, extra repayments, redraws and other transactions. A statement showing only today’s total does not tell that story.

The ATO’s guidance on redraw facilities makes the use of funds and mixed-purpose borrowing relevant to interest treatment. That is why the history should be available when the loan arrangements are reviewed.

Source: ATO Taxation Ruling TR 2000/2.

Map the proposed transaction

Write down each old account to be paid out, each new account to be opened and any additional amount to be released. For extra funds, identify the intended destination and use. Mark anything not yet agreed with the lender.

This map is a discussion document. Ask your broker to confirm the loan mechanics and your accountant to identify the tax questions. Neither should have to infer your plans from an unexplained transfer amount.

Keep the documents together

• Original loan and settlement records.
• Statements showing material redraws and repayments.
• Evidence of where borrowed amounts were used.
• The proposed refinance and payout figures.
• Details of any additional borrowing and its intended use.
• Documents explaining current private or income-producing use.

If an old account is about to close, arrange access to the records you need beforehand. Ask the adviser what period of history is required for the review.

Check the wider cash position

Compare the proposed repayment commitments with the current budget and note any upfront costs. Explain if the refinance is intended to support another property purchase, release cash for private spending or change how you manage repayments.

Different objectives raise different questions. A lower monthly repayment alone does not resolve the ownership or tax issues surrounding the next transaction.

Agree on the questions before settlement

Summarise the outstanding points in one email or document: account structure, funds destinations, evidence needed and who is confirming each item. Give the advisers the proposed timing so any necessary work can be identified early.

Read offset vs redraw for the account distinction and the portfolio review checklist for existing holdings. The broader tax, cash-flow and borrowing service connects these questions before your next move.