Course of events: Transaction 1: Purchase IP 1 with variable loan Transaction 2: Purchase IP 2 with fixed rate loan, cross-collaterised with IP1 Transaction 3: Sell IP 2 The fixed rate loan is out-of-money. The bank allows me to discharge the Variable loan instead of the Fixed Rate loan and avoid having to pay break cost upfront (yes over time it means the same thing, but liquidity benefit). Assume the LVR is maintained and there is no net increase in loan against IP1, except it has effectively been internally refinanced to be a fixed rate loan. Does ATO see the discharge of the variable loan to mean that IP1 is debt-free. And consequently, disallow all interest on the fixed rate loan, because there is no income with IP2 sold?