Refinancing 2 loans for the 1 property and potential tax issues Another new potential issue has come to my attention thanks to @Propagate in this thread: https://propertychat.com.au/communi...t-cause-borrowed-funds-to-take-a-detour.5011/ Something I had never considered before. Example P has a PPOR worth $500,000. This securing 2 loans: Loan A $100,000 loan for the main residence = non deductible Loan B $100,000 LOC of which $50,000 has been used to buy IP1. Both loans are with CBA. IP 1 purchased for $400,000 using Loan B $50,000 deposit from the LOC with CBA, and Loan C $350,000 from ANZ Bank. $400,000 in total. Interest on both B and C being deductible against the rent for IP1. IP 1 is now worth $650,000 and P wants to refinance this $350,000 loan from ANZ and also refinance the $50,000 used from the LOC with CBA. He intends to get a $400,000 loan from NAB. The potential problem NAB will lend the $400,000 needed as P meets the LVR and income requirements. However when they hand the money over they will only be discharging the mortgage with ANZ. This means they will be paying ANZ $350,000 at settlement with the other $50,000 to be ‘given’ to P by depositing it into an account – only an NAB account. This will potentially cause the $400,000 loan to be mixed. If P were to pay into the account and then back into the loan before redrawing and paying the ANZ loan then this would kill the deductions on $50,000 worth of the loan. Possible solutions 1. Obtain a bank cheque for the $50k and physically deposit it straight into the LOC account with CBA 2. Have the $50k paid into a completely empty NAB account and then from there pay straight into the CBA LOC account. Not ideal – see potential issues in Tax Tip 1. 3. Increase the loan with ANZ from $350,000 to $400,000 before refinancing – but you will have the same issues – where they will pay the extra $50,000 if they cannot pay straight into the CBA account. The bank cheque is the only ideal solution. The second solution is the next best option, but may not be 100% safe. The third one is not really a solution unless your bank will let you disburse funds directly into another bank’s loan account.