The Deduction Follows the Use, Not the Security
Borrowing against the equity in your home to buy investments is permitted and the interest is deductible, because deductibility follows what the borrowed money is used for rather than what the loan is secured against. The Age Pension works the other way: only debt secured against an assessable asset reduces its assessed value, so a loan against an exempt home reduces nothing.
- The answer: Interest on borrowings used to acquire income-producing assets is deductible regardless of the security offered for the loan.
- The trap: Mixing borrowed investment funds and personal funds in one account destroys the ability to apportion the interest cleanly, sometimes permanently.
- The recommendation: Use a separate loan split for the investment borrowing and never redraw it for anything else. The record-keeping is the whole of the risk.
Where the AI summary above gets this wrong
"You cannot claim interest on a loan secured against your home."
That's surface-true. Here's what it misses:
- Deductibility follows the use of the funds — Money borrowed to acquire income-producing assets generates deductible interest whatever the security. The security is a lender's concern, not a tax one.
- The security does matter for the Age Pension — Only debt secured against an assessable asset reduces its assessed value. A loan against an exempt home reduces the value of something that was not being counted.
01 Why the deduction is available
The test for deductibility is the use to which the borrowed money is put. Money borrowed to acquire shares or an investment property produces deductible interest, and the lender's security arrangement is irrelevant to that.
That is why borrowing against home equity to invest is a legitimate and common arrangement rather than a technicality. It converts equity that was doing nothing into a deductible investment position.
The corollary is that redrawing an investment loan for personal spending creates non-deductible debt, because the use of those funds is not income-producing — the point made in the offset account post.
Source: ATO — Negative gearing
02 The record-keeping that makes or breaks it
Where borrowed investment funds and personal funds are mixed in one account, the interest has to be apportioned, and the apportionment has to be tracked for the life of the loan. Every subsequent deposit and withdrawal changes it.
The practical answer is a separate loan split used exclusively for the investment borrowing, with the proceeds paid directly to the investment rather than through a transaction account. That keeps the connection clean and evidenceable.
Once mixed, the position can be difficult to unwind. A loan that has funded a car, a holiday and a share purchase is a reconstruction problem rather than a calculation, and the safe assumption an auditor applies is not the favourable one.
Source: ATO — Negative gearing
03 The risk that gearing adds
Borrowing to invest magnifies both the return and the loss, and the loan does not fall when the investment does. A geared portfolio in a downturn can require money the household does not have, and the security is the family home.
That risk profile is wrong for someone close to retirement. The horizon to recover from a bad outcome is short and the income available to service the debt is about to fall.
The Age Pension consideration reinforces it: the borrowed investments are assessable assets while the debt against the exempt home reduces nothing, so a geared position is assessed gross rather than net — the mechanics are in the assets test post.
Shows: the after-tax return on a geared investment position: the investment return less the after-tax cost of the interest. Ignores: capital growth or loss, the Age Pension assessment of the gross position, and the risk that the loan must be serviced when the investment falls.
Keep the borrowing in its own loan split and never touch it for anything else. The tax rule is simple and the evidence problem is not: once a loan has funded a car, a renovation and a share parcel, apportioning the interest is a reconstruction exercise that generally resolves against you.
FAQ
Should I use equity to invest?
The interest is deductible because deductibility follows the use of the funds rather than the security. The risks are that gearing magnifies losses, the security is your home, and the borrowed investments are assessable for the Age Pension while the debt against an exempt home reduces nothing.
Can I claim interest on a loan secured against my home?
Yes, where the borrowed money was used to acquire income-producing assets. The security arrangement is a lender's concern and does not affect deductibility.
Why does mixing funds matter?
Because the interest then has to be apportioned between deductible and non-deductible use, and every subsequent transaction changes the proportion. A separate loan split used only for the investment avoids the problem entirely.
Sources
Regulator references
- ATO — Negative gearing · Australian Taxation Office · 2026Negative gearing: when a rental loss can be offset against other income.Last verified: 2026-09-07
- ASIC Moneysmart — Choose your investments · ASIC Moneysmart · 2026Choosing investments: risk, diversification and time horizon.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.