New Borrowings to Offset Investment Loan - Deductible?

Is a loan only deductible when borrowed to "purchase" an investment, or is it also be deductible when borrowed later to offset/pay down an investment loan?

I read that a loan can be deductible if it's "in relation to" an income-producing asset, is that broad enough to cover these scenarios:

Investment property has already been purchased, but later I...
a) Redraw from my 1st residential loan and use the funds to offset/pay down the 2nd investment loan.

b) Borrow a new 3rd loan to offset/pay down the 2nd investment loan.

Are these additional borrowings still considered for investment purposes and deductible? Thanks!

 

s8-1 itaa97. If the interest is incurred in producing assessable income.

if you borrow to pay down an investment loan the interest could be deductible on the new loan as this is a refinance. Not if you put the money in the offset account.

seek specific tax advice

 

Thanks for sharing your knowledge!

So generally, are loans only deductible when it is linked to the "purchase" event?

After purchase, are there any situation or transaction/event at all that might allow a new loan relating to an existing asset to be deductible?

If I understand the refinance example correctly, the new lender must pay the funds "directly" to the old lender, so the logic being the new loan is still linked to the original purchase funds? If it even passes through a borrower's private account, then there could be a problem?

 

The loan has to be connected to the income in some way. You could borrow to repair or improve a property and potentially claim the interest if that property producces rent.

If a lender pays money into your private account and that money is then used to reduce another deductible debt the waters get muddied, especially if there is cash in that private account. There is a long thread of this topic here:
https://bit.ly/33l4o4c