In this article, we will answer the question: Are refinance fees tax-deductible? Refinancing your investment property loan can be a smart move. It might help you secure a lower interest rate, access equity for future investments, or switch to a loan with features better suited to your strategy, like an offset account or redraw facility.
But when it comes to tax time, understanding which refinancing costs you can claim can feel complicated. The Australian Taxation Office (ATO) has specific rules, and getting it right is crucial for maximising your return and staying compliant.
As expert mortgage brokers in Brisbane, we help property investors navigate the complexities of finance every day. This guide breaks down the rules around tax deductions for refinance fees in Australia, so you can approach your next refinance with confidence.
The Golden Rule: It All Comes Down To Loan Purpose
When it comes to understanding whether refinance fees are tax-deductible, the Australian Taxation Office (ATO) places a strong emphasis on one key factor: the purpose of the loan. In other words, what you use the borrowed money for determines if you’re eligible to claim deductions.
Let’s break it down clearly:
1. Investment Property Loans: A Clear Path to Deductions
If you’ve taken out a loan to purchase, renovate, or maintain an investment property that generates rental income, then the associated interest and borrowing costs — including many refinancing expenses — are typically tax-deductible.
For example, let’s say you refinance your investment loan to secure a better interest rate or to access equity for a rental property renovation. In this case, not only is the interest tax-deductible, but so are many of the associated fees, like:
- Loan application fees
- Mortgage registration and discharge fees
- Title search fees
- Break costs (for fixed-rate loans)
So, are refinance fees tax-deductible for investment properties? Yes — if the purpose of the refinancing remains investment-related, the ATO generally allows these costs to be claimed over five years.
However, it’s essential that the funds remain strictly used for income-generating purposes. The moment they’re redirected to something private — like a holiday or personal car — you’re moving into murkier territory.
2. Owner-Occupier Loans: No Deduction for Personal Homes
On the other hand, if you refinance your owner-occupier home loan (the house you live in), the rules change significantly.
Because your primary residence does not generate assessable income, it’s considered a private asset. Under ATO guidelines, expenses that relate to private use, including refinancing costs, are not tax-deductible.
So, if you’re wondering, are refinance fees tax-deductible for your personal home loan? The answer is generally no. Even if you’re refinancing to reduce repayments or access equity for renovations, these are still considered private expenses and cannot be claimed on your tax return.
3. Mixed-Use Loans: When Things Get Complicated
Now, what if you refinance a loan and the new funds are split between investment and personal use?
For example, imagine you refinance your mortgage, and part of the new loan is used to pay for upgrades to your rental property, while another part is used for a kitchen reno in your family home. In this scenario, you’ll need to apportion the loan and related fees accordingly.
Only the portion of the loan that directly relates to the investment property is tax-deductible. This includes the relevant portion of interest and eligible refinancing fees. The private portion remains non-deductible.
Accurate record-keeping is critical here. Keep clear documentation of how the borrowed funds were used, as the ATO requires evidence to support any deduction claims.
Case Study: Mixed-Use Loans and the Complication of Tax Deductions
John and Mary Smith are a married couple who own a family home and an investment property. Their current mortgage balance is $500,000, and they are considering refinancing the loan to access additional funds. They plan to use the new loan funds in two ways:
- $50,000 for upgrades to their investment property (new roofing and landscaping).
- $50,000 for a kitchen renovation in their family home.
They refinance their loan to a new total of $600,000.
Step 1: Loan Refinancing Overview
John and Mary refinance their $500,000 mortgage and borrow an additional $100,000 to fund the renovations. Their new mortgage balance becomes $600,000, and the additional $100,000 is split between:
- $50,000 used for upgrades to the investment property (tax-deductible portion).
- $50,000 used for renovations to their family home (non-deductible portion).
Step 2: Apportioning the Loan for Tax Purposes
To determine how much of the interest and refinancing fees are deductible, the loan must be apportioned based on its use. Since the additional $100,000 is split into two portions, the interest charged on each portion of the loan will be treated differently.
Investment Property Portion:
- Amount used for investment property upgrades: $50,000.
- This portion of the loan is tax-deductible because the funds were used for a property that generates rental income.
Family Home Portion:
- Amount used for the family home kitchen renovation: $50,000.
- This portion is non-deductible because the funds were used for personal purposes (non-income-producing property).
Step 3: Calculating the Tax-Deductible Interest
Now, let’s assume the following:
- The interest rate on the refinanced loan is 5% per annum.
- The loan balance is interest-only for simplicity.
Interest on Total Loan:
The annual interest on the entire loan of $600,000 is:
600,000×5%=30,000 (total interest for the year)
Apportioning the Interest:
The total refinancing amount is $600,000, with $50,000 allocated to the investment property and $50,000 to the family home. To determine the interest related to each portion, we use the following ratios:
- Investment Property Interest: The portion of the loan allocated to the investment property is $50,000, which is 50,000/600,000=8.33% of the total loan.
- Family Home Interest: The portion of the loan allocated to the family home is $50,000, which is 50,000/600,000=8.33% of the total loan.
Interest on Investment Property:
The interest on the $50,000 portion allocated to the investment property is:
30,000×8.33%=2,500 (deductible interest)
Interest on Family Home:
The interest on the $50,000 portion allocated to the family home is:
30,000×8.33%=2,500 (non-deductible interest)
Step 4: Apportioning the Refinancing Fees
In addition to the interest, John and Mary will also incur refinancing fees, including lender fees, valuation fees, and legal costs. Let’s assume the total refinancing fees are $2,000.
To allocate these fees, we apply the same apportionment ratio:
- Investment Property Portion: The investment property accounts for 8.33% of the total loan, so the fees related to the investment property are:
2,000×8.33%=166.67 (deductible fees)
- Family Home Portion: The family home accounts for 8.33% of the total loan, so the fees related to the family home are:
2,000×8.33%=166.67 (non-deductible fees)
Step 5: Record-Keeping and Documentation
It is essential that John and Mary maintain accurate records to support the deductions they will claim. This includes keeping the following:
- Loan statements showing the breakdown of interest payments.
- Receipts for the $50,000 spent on the investment property.
- Invoices for the $50,000 spent on the family home.
- Refinancing documentation detailing the total loan amount and any fees incurred.
- Evidence of the purpose of the borrowing, such as contracts for property renovations and invoices for materials and labor.
In this case, John and Mary need to ensure they only claim tax deductions on the portion of the loan that relates to the investment property. By accurately apportioning the loan, interest, and refinancing fees, they can claim $2,500 in deductible interest and $166.67 in deductible refinancing fees related to the investment property. At the same time, the remainder of the expenses must be treated as non-deductible. Proper documentation will be key to ensuring the ATO accepts their claims.
Understanding Different Types Of Refinance Costs
When you refinance, you’ll encounter various fees. For tax purposes, they generally fall into three categories:
- Borrowing Expenses: Costs directly related to setting up the new loan.
- Mortgage Discharge Expenses: Costs related to finalising and closing the old loan.
- Capital Costs: Expenses related to the property purchase or ownership that aren’t immediately deductible but can reduce Capital Gains Tax later.
Let’s explore each category in detail.
Borrowing Expenses: Costs for Your New Loan
Refinance fees are tax deductible in Australia if you’re refinancing a loan that’s used to purchase or maintain a rental (income-producing) property. You may be eligible to claim certain borrowing expenses over time. These include:
- Loan application or establishment fees: These are charged by your new lender to process and set up your refinanced loan.
- Lender’s Mortgage Insurance (LMI): If your Loan-to-Value Ratio (LVR) is high (typically above 80%), you may be required to pay LMI. Even though this insurance protects the lender, the ATO allows you to treat the premium as a borrowing expense when it’s related to an investment property.
- Title search fees: Often required by your new lender to confirm the property’s legal status.
- Mortgage document preparation and legal fees: This includes costs related to drafting, reviewing, and registering the mortgage documents.
- Mortgage broker fees: If you used a broker to arrange your refinance, their service fees are generally claimable, provided the loan is strictly for investment purposes.
- Valuation fees: Only claimable if the lender required the valuation as a condition of approving your investment loan.
- Stamp duty on the mortgage: This is a lesser-known fee levied by state or territory governments on the mortgage document (not to be confused with property purchase stamp duty).
How To Claim Borrowing Expenses
Although these refinance fees are tax-deductible, Borrowing expenses aren’t claimed in full immediately. Instead, the ATO requires that these costs be apportioned over time, based on the following rules:
If total borrowing expenses exceed $100:
You must spread the deduction over five years, or over the term of the loan — whichever is shorter.
Let’s say you refinance your investment property, and the associated borrowing expenses total $2,000.
Your new loan has a term of 20 years.
Since 5 years is shorter than the loan term (20 years), the $2,000 must be spread across 5 years.
Annual deduction: $2,000 ÷ 5 = $400 per year
If the loan started part-way through the year
Your first-year deduction must be prorated based on how many days you held the loan during the financial year.
If your loan commenced on 1 January, meaning you held it for 182 days in the financial year (assuming a non-leap year), you’ll need to prorate the first year’s deduction:
- First year’s deduction:
- $400 × (182 ÷ 365) = $199.45
You’ll then claim the full $400 in each of the next four financial years, unless the loan is repaid early.
If you repay or refinance the loan early
You can claim the remaining balance of borrowing expenses in the year the loan is paid off.
Let’s say you pay off or refinance this loan after 3 years. In that third year, you can claim the remaining unclaimed borrowing expenses in full.
- Already claimed in Year 1: $199.45
- Claimed in Year 2: $400
- Claimed in Year 3: $400
- Remaining balance: $2,000 – ($199.45 + $400 + $400) = $1,000.55
You can claim this remaining $1,000.55 in the year the loan was discharged.
If your total borrowing expenses are $100 or less:
You can claim the full amount in the year you incur the costs.
To simplify things, the ATO provides a borrowing expenses calculator to help determine your eligible deductions.
Mortgage Discharge Expenses: Costs For Finishing Your Old Loan
Mortgage discharge expenses are the fees charged by your outgoing lender to officially close and release the mortgage tied to your investment property. These are generally one-time costs paid at settlement when you refinance or sell the property.
If the loan being discharged was entirely used for an investment purpose, then these refinance fees are typically tax-deductible in the financial year you incur them.
What Mortgage Discharge Fees Are Tax Deductible?
Here are the most common mortgage discharge expenses you may be able to claim:
1. Mortgage Discharge Fee
This is a standard administrative fee your old lender charges to remove the mortgage from your property’s title. It’s a necessary step in the refinancing process and, when tied to an investment loan, it’s tax-deductible.
2. Early Repayment or Exit Fee
If your old loan had a fixed interest rate, there might be a break cost or early exit fee for repaying the loan before the fixed term ends. These fees are often higher with fixed-rate loans, but are also claimable if the discharged loan was for an income-producing purpose.
How to Claim Mortgage Discharge Expenses
Discharge expenses are generally claimed as a one-off deduction in the same financial year you pay them.
There’s no need to spread these deductions over several years like with other borrowing costs. That said, there are a couple of important rules to be aware of:
- Investment Purpose Only: The loan being discharged must have been used solely for income-generating purposes, like financing a rental property. If the loan was for your own home or for personal use, these costs are not deductible.
- Mixed-Purpose Loans: If your old loan was used partly for investment and partly for private purposes (e.g. part of it was used to buy a car or renovate your home), you’ll need to apportion the discharge fees. Only the portion relating to the investment can be claimed.
What Refinance Costs Are NOT Immediately Deductible?
Some refinancing or property-related costs can’t be claimed as a yearly tax deduction, but that doesn’t mean they’re financially useless. Instead, they increase your property’s cost base, which is important when you eventually sell the property and calculate Capital Gains Tax (CGT).
Simply put, your cost base is what you’ve spent to acquire and hold the property. A higher cost base means a smaller capital gain, which could reduce the amount of tax you owe when you sell.
Here are common costs that are added to your cost base:
1. Stamp Duty Paid on Purchase
While stamp duty is a significant upfront cost, especially in cities like Sydney and Melbourne, it’s not an immediate tax deduction. Instead, it becomes part of the cost base when calculating CGT later on.
2. Legal and Conveyancing Fees for Purchase
Any fees paid to solicitors or conveyancers to assist with the original purchase of the property are not deductible but are added to the cost base.
3. Private Valuation Fees
If you obtain a property valuation for your own reference (not one required by your lender), that cost cannot be claimed as a borrowing expense. However, it may be included in the cost base for CGT purposes.
4. Building and Pest Inspection Reports
These are typically ordered before settlement and used as part of your due diligence. They aren’t immediately deductible, but like other acquisition costs, they form part of your property’s cost base.
By understanding these distinctions, you can see that while these costs may not reduce your annual tax bill, they could help reduce your capital gains liability down the track.
Costs That Are Not Deductible
Unfortunately, some costs associated with home loans and refinancing are considered private in nature and therefore are not deductible under any circumstances.
1. Loan Principal Repayments
This is a common misconception. While interest on an investment loan is typically deductible, the principal portion—the actual amount borrowed—is not. You’re simply repaying what you originally received, which is not considered a tax-deductible expense.
2. Interest on the Private Portion of a Loan
If your loan is used for both investment and personal reasons (a mixed-purpose loan), only the interest associated with the investment portion is deductible. Any interest on funds used for private purposes—like buying a car, paying off credit cards, or renovating your home—is not deductible.
3. Borrowing or Discharge Expenses Related to the Private Portion of a Loan
Just like interest, fees incurred when taking out or discharging a loan must be apportioned if the loan is not 100% investment-related. The private portion of these fees cannot be claimed.
4. Fees for Refinancing Your Owner-Occupied Home Loan
This one often catches homeowners off guard. If you refinance the loan for the home you live in, all associated fees—application fees, discharge fees, lender’s mortgage insurance (LMI), etc.—are considered private expenses. The ATO does not allow deductions for these costs.
So if you’ve been asking yourself, “Are refinance fees tax deductible?”—the answer depends entirely on the purpose of the loan. If it’s for an investment property, many costs may be deductible (some immediately, some over time). But if the loan is for your primary residence, the answer is a firm no—those fees are not tax deductible under current ATO guidelines.
FAQs: Are Refinance Fees Tax Deductible In Australia
For investment properties, tax-deductible home loan costs may include loan interest, borrowing expenses (like application fees, lender's mortgage insurance (LMI), valuation costs, and mortgage stamp duty), and discharge fees from a previous investment loan. These must relate to the purpose of generating assessable rental income. Costs associated with owner-occupied (private) homes are generally not deductible.
Yes, if the refinanced loan continues to be used for investment purposes (e.g. to generate rental income), the interest on the new loan remains tax deductible. However, if any portion of the refinanced loan is used for private purposes, such as buying a car or renovating your own home, only the investment portion of interest is deductible.
Yes, mortgage broker fees incurred while arranging a refinanced investment loan are considered borrowing expenses and are tax deductible. These costs must be apportioned over five years or the loan term (whichever is shorter) if they exceed $100.
If a refinanced loan is used for both investment and private purposes, costs must be split proportionally based on how much of the loan relates to each purpose. Accurate record-keeping is essential; only the investment portion of borrowing expenses and interest can be claimed.
Borrowing expenses over $100 must be claimed evenly over five years or the loan term (whichever is shorter). If $100 or less, they can be claimed in full in the year incurred. These can be listed under "Other Deductions" when completing your tax return.
Yes, but only if the break fees relate to an investment loan. If you exit a fixed-rate investment loan early, the break cost may be deductible in the year it's incurred. Fees related to private loans (like your own home) are not deductible
Yes. Lender's Mortgage Insurance (LMI) paid on an investment loan is a deductible borrowing expense. If the cost exceeds $100, it must be amortised over five years or the loan term, whichever is shorter.
Costs such as stamp duty on purchase, legal fees, and private valuation or inspection costs are not immediately deductible but can be added to the property's cost base. This helps reduce Capital Gains Tax (CGT) when you eventually sell the investment property.
Refinancing an investment loan can continue to offer tax deductions if the purpose of the loan remains income-producing. Costs like borrowing expenses and break fees may be deductible. Apportionment is required if you increase the loan and use part of it for personal reasons.
Renovation costs may be deductible depending on whether they are classified as repairs (immediately deductible) or capital improvements (added to the cost base for CGT). If the renovations are funded through a refinanced investment loan, interest on the loan may also be deductible.
Principal repayments, private interest, and fees relating to owner-occupied home loans are not tax-deductible. Similarly, private expenses like legal costs for a home purchase or building and pest inspections are not deductible.
Keep all loan documents, lender statements, receipts for fees, purpose statements for any loan splits, and correspondence showing how funds were used. This is especially important if the loan has a mixed (investment/private) purpose
Key Takeaways: Refinance Fees & Tax Deductions
Refinancing an investment property can offer great long-term financial benefits, but when it comes to tax time, knowing what you can and can’t claim makes all the difference. Here’s a clear summary to help you stay on track:
Purpose Is Everything – The ATO looks closely at the purpose of the loan. If your refinanced loan is used to generate rental income—such as funding an investment property—then many of the associated fees and interest are likely to be deductible. If the loan is for personal or private purposes (like your own home), those costs aren’t deductible.
Investment vs Private Loans – Expenses tied to investment loans are generally tax-deductible. In contrast, costs related to owner-occupied home loans are considered private and therefore not deductible. If your loan is used for both purposes (e.g. part investment, part personal), you must apportion the costs accordingly.
Borrowing Expenses Over or Under $100 – If your new investment loan incurs borrowing expenses over $100, you must claim them over 5 years or the loan term (whichever is shorter). These include application fees, lender’s mortgage insurance (LMI), valuation costs, mortgage stamp duty, and more. If the total is $100 or less, you can claim it all in the financial year you incur the cost.
Discharge Expenses from Old Loan – Fees from discharging your old investment loan, like administrative or early repayment fees, are immediately deductible.
Capital Costs Are Not Deductible Now, But Important Later – Certain purchase-related costs (e.g. stamp duty, legal fees) aren’t deductible now but can be added to your property’s cost base to reduce Capital Gains Tax (CGT) when you sell.
Good Records Matter – Keep detailed records of all loan documents, costs, and purposes. Clear documentation is crucial for accurate tax reporting and peace of mind.
Need Help Navigating Your Refinance and Tax?
Understanding tax implications is just one part of the refinancing puzzle. Finding the right loan structure, comparing comparison rates, and ensuring the features align with your investment goals are equally important. The rules can seem complex, and getting expert advice ensures you make informed decisions.
Our team at Hunter Galloway is here to help you. Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to helping make your home loan journey as simple as possible. If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
More Resources For Homebuyers:
- 7 reasons to refinance your home loan in 2025
- Renovation loans: the definitive guide
- Rentvesting – go from 0 to 3 properties in 3 years
- How is home loan interest calculated?
- Can a home loan cover stamp duty
Disclaimer: This information is general in nature and does not constitute financial or tax advice. Taxation laws are complex and subject to change. You should consult with a qualified tax advisor or accountant to discuss your specific circumstances before making any decisions.
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