How to Un-Mix a Mixed Loan You cannot unscramble an egg, but you can unmix a mixed loan. ATO allows a mixed loan to be separated into 2 or more loans so that it is no longer mixed - see paragraph 18 of TR 2000/2 Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities" "18. A taxpayer may choose to refinance a debt outstanding on a mixed purpose sub-account by borrowing an equivalent amount under two separate accounts or sub-accounts. If the sums borrowed under those two separate accounts are equivalent to the respective income producing and non-income producing parts of the existing outstanding debt, we accept that interest accrued on the debt incurred in refinancing the income producing portion of the mixed purpose debt will be deductible." http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20002/NAT/ATO/00001 Example. John redraws from his home loan to get $100,000 deposit which he used for his investment property purchase. $400,000 loan became a $500,000 loan and it is now mixed. John needs to refinance the loan so it is split into 2: Loan A being $400,000 and Loan B being $100,000 John should do this asap because any deposits into the big loan will come off both portions of the loan and he will be paying down investment debt and further mixing the loans.