Where borrowed funds are taken from a loan and put into another account, such as a cheque account, with other funds, and then used the interest on those borrowed funds will either not be deductible or at best only deductible in part. Once the borrowed funds are in a savings or cheque account they are no longer borrowed funds. And then once borrowed funds are mixed with other cash then it is impossible to separate the borrowed funds - (like mixing milk and orange juice and trying to take out the milk). It doesn’t matter if the funds are in the account for just 1 or or 1 hour it will be impossible to rectify the situation. It may be possible to repay the money into the loan and to reborrow, but this will only fix the tax problem if the loan is not mixed. If the loan is mixed (money used for 2 or more purposes) then paying back into the loan will further mix it and create a better mess. For a AAT case concerning this matter see Domjan and Commissioner of Taxation)  AATA 815 http://www.austlii.edu.au/au/cases/cth/AATA/2004/815.html Summary: Best to avoid taking your borrowed funds on a detour and pay directly from the loan account.