Guide to Refinancing Investment Property Tax Implications Australia
With the Reserve Bank of Australia continuing to raise the cash rate, many investors with variable-interest loans on their investment properties are feeling the impact. Refinancing may seem like the best way to save on interest and secure a fixed-term loan, but it’s crucial to consider the potential tax implications. Refinancing can affect your capital gains tax obligations and tax deductions. This blog post will examine the tax implications of refinancing investment properties to help you make informed decisions.
What Does it Mean to Refinance Your Rental Property Loan?
Refinancing your investment property loan is simply getting a new loan to replace your current one. This means using the new loan to pay off your existing loan, ideally securing better terms like a lower interest rate, lower monthly payments, or a more flexible repayment schedule. Investors often refinance to save money on interest, access equity for other investments or expenses, or adjust their loan terms to better fit their changing financial needs. Keep in mind that refinancing means going through the mortgage application process again, and there will be new fees and closing costs. It’s always a good idea to talk to a mortgage broker to weigh the pros and cons of refinancing. They can help you compare different loan options, calculate the costs, and decide if it’s the right move for you.

Can You Claim Tax Deductions for the Refinancing Costs?
Although investors must pay income tax on any earnings they generate from their investments, the Australian Taxation Office (ATO) allows investors to claim various tax deductions and offsets to reduce their tax liability.
For example, investors can claim deductions on interest payments, council rates, repairs and maintenance, and depreciation of assets. Additionally, if an investment generates a loss (i.e. it’s negatively geared), the investor can offset it against their other taxable income to reduce their overall tax bill.
You may be interested in reading about these 11 investment Property Tax Deductions You Can Claim.
In addition to these tax deductions and potentially lowering interest rates, refinancing an investment loan can offer a few tax benefits for investors – one such benefit being the ability to claim tax deductions for the borrowing costs you incur from refinancing your mortgage.
Investment property owners may be able to claim tax deductions for the following borrowing expenses:
- Valuation fees charged by the lender
- Any title search fees charged by the lender
- Early discharge fees
- Loan establishment fees, including application fees
- Fixed-rate loan break fees
- Mortgage broker fees
- Lenders mortgage insurance
What Are the Rules for Claiming These Costs as a Tax Deduction?
When claiming a tax deduction for refinancing borrowing expenses, keep the following rules in mind:
- If total borrowing expenses exceed $100, you can claim the deduction over the loan term or five years, whichever is shorter.
- If total refinancing costs are less than $100, you can claim the full deduction in the income year you incur them.
- If you repay the loan in less than five years, you can claim a deduction for the remaining borrowing expenses in the final year of repayment.
- If you obtained the loan during the income year, you must apportion the first year’s deduction based on the number of days you held the loan that year.
Example:
The Johnsons refinanced their investment loan and took out a new loan of $280,000 for a term of 15 years to purchase a rental property for $220,000 and finance a new car for $60,000.
To secure the new loan, they incurred $2,150 in establishment fees, valuation fees, mortgage broker fees and early discharge fees.
As their borrowing expenses are more than $100, the ATO requires them to spread the deduction over the loan term or five years, whichever is shorter.
Since a part of the loan ($60,000) was used for private purposes, they can claim a deduction only for the rental property loan’s portion of the borrowing expenses.
Assuming that the loan was taken out on 5 September 2022, the Johnsons would calculate the borrowing expense deduction for the first year as follows:
Borrowing expenses x (number of days relevant in the year ÷ number of days in the 5-year period) x (amount of rental property loan ÷ total amount borrowed) = deduction for the year.
Their borrowing expense deductions in the following years should be worked out as follows:
Borrowing expenses remaining × (number of relevant days in year ÷ remaining number of days
in the 5-year period) × (amount of rental property loan ÷ total amount borrowed) = deduction
for the year.
Year | Calculation | Available Deduction for the Year |
1 | $2,150 x (299 ÷ 1,826) x ($220,000 ÷ $280,000) | $277 |
2 | $1,798 x (365 ÷ 1,477) x ($220,000 ÷ $280,000) | $349 |
3 (leap year) | $1,354 x (366 ÷ 1,112) x ($220,000 ÷ $280,000) | $350 |
4 | $908 × (365 ÷ 746) x ($220,000 ÷ $280,000) | $349 |
5 | $464 × (365 ÷ 381) x ($220,000 ÷ $280,000) | $349 |
6 | $20 × (16 ÷ 16) x ($220,000 ÷ $280,000) | $16 |

Will Refinancing Impact Your Capital Gains Tax Obligations on Rental Properties?
Capital gains tax (CGT) is a tax that the ATO levies on the profits made from the sale of an income-producing asset, such as your investment property. Your capital gain or loss is essentially the difference between the sale price and the property’s cost base. In other words, you pay CGT on the increase in value of your property during the time that you owned it.
Certain costs incurred during refinancing are not tax deductible; however, they can be added to your property’s cost base. These expenses, commonly referred to as “capital” costs, include:
- Stamp Duty
- Legal expenses, such as conveyancing fees
- Private valuation costs
- Inspections
By including these expenses in the cost base of your property, you can effectively mitigate the amount of capital gains tax payable upon its sale. Consequently, it is recommended that you retain receipts for all capital expenditures and seek professional advice from your tax agent or accountant regarding this matter.
Key Takeaways
Refinancing an investment property can provide numerous advantages, such as access to more favorable interest rates, improved cash flow, and the opportunity to access equity for subsequent investments. Furthermore, investors may be eligible to claim deductions on certain refinancing expenses.
It is essential to carefully consider the costs and benefits of refinancing and consult with both a mortgage broker and a tax professional to ensure alignment with your individual financial goals and circumstances. Should you require tax advice concerning your investment property refinancing, please do not hesitate to contact Property Tax Specialists for expert guidance.
DISCLAIMER: This information has been prepared without taking into account your objectives, financial situation, or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation, or needs.
Amir Ishak is a Limited Authorised Representative 1269908 of Merit Wealth Pty Ltd, Australian Financial Services Licence 409361, ABN 89 125 557 002