Are Refinance Fees Tax Deductible in Australia? A Guide for Property Investors

Are refinance fees tax deductible in Australia? Refinancing an investment property can unlock lower rates and equity, but navigating the ATO’s specific rules is the difference between a high return and a costly audit. While most investors know interest is deductible, many miss the “hidden” immediate deductions available when closing old loans or miscalculate the 5-year amortization of borrowing costs. 

This guide, written by an expert mortgage broker in Brisbane, breaks down exactly what you can claim in 2026 to ensure you’re maximizing your cash flow while staying strictly compliant.

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:

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:

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.

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.

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.

Many investors believe the property used as security determines tax deductibility. This is a common and costly mistake. The ATO does not care which property secures the loan. They only care about what you do with the money.

We call this the “Purpose” Trap. It can either save you thousands or trigger an unexpected tax bill.

The “nexus” or link for a deduction is the purpose of the funds. According to ATO Tax Ruling TR 95/25, interest is deductible if the borrowed money produces income.

Refinancing to “cash out” equity is a popular strategy. However, the ATO tracks how you spend every dollar of that cash.

If you use equity for a holiday, that portion of your loan becomes “tainted.” You must then separate the private interest from the investment interest. This is known as an apportioned loan.

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:

They refinance their loan to a new total of $600,000.

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:

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:

Family Home Portion:

Now, let’s assume the following:

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:

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)

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:

2,000×8.33%=166.67 (deductible fees)

2,000×8.33%=166.67 (non-deductible fees)

It is essential that John and Mary maintain accurate records to support the deductions they will claim. This includes keeping the following:

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.

When you refinance, you’ll encounter various fees. For tax purposes, they generally fall into three categories:

Let’s explore each category in detail.

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:

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:

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

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:

You’ll then claim the full $400 in each of the next four financial years, unless the loan is repaid 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.

You can claim this remaining $1,000.55 in the year the loan was discharged.

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.

Did you know refinancing could trigger a surprise tax bonus? Many investors miss this “shortcut” to a bigger tax return.

When you first set up an investment loan, you likely paid “borrowing expenses.” These include items like LMI, application fees, and mortgage registration costs. The ATO usually makes you spread these deductions over five years.

But what happens if you refinance after only three years?

Under Section 25-25 of the Income Tax Assessment Act 1997, a special rule applies when you “discharge” or pay off a loan early. If you refinance your current investment loan, your old loan is technically paid in full.

Because the old loan no longer exists, you don’t have to wait years to claim the rest of those costs. You can claim the entire remaining balance of those original borrowing expenses in one go.

Imagine you spent $2,000 on borrowing costs two years ago. You have been claiming $400 each year. You still have $1,200 left in unclaimed deductions.

If you refinance today, you can claim that full $1,200 on your next tax return. You don’t need to wait another three years to get your money back.

To use this shortcut, you must prove the original costs. Keep your old loan offer documents and settlement statements. Your accountant will need these to calculate the exact remaining balance.

Are you ready to see if a refinance makes sense for your portfolio? We can help you compare the numbers and find a better deal. Please give us a call on 1300 088 065 or  book a free assessment online to see how we can help

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.

Here are the most common mortgage discharge expenses you may be able to claim:

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.

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.

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:

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:

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.

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.

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.

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.

Unfortunately, some costs associated with home loans and refinancing are considered private in nature and therefore are not deductible under any circumstances.

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.

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.

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.

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.

The ATO is currently cracking down on rental property deductions. Recent audits found errors in 9 out of 10 returns reviewed.

Because of this, the ATO uses sophisticated data-matching. They compare your claims against bank and land title records. To stay safe, your record-keeping must be perfect.

A common mistake is “double-dipping” on expenses. This often happens with property manager reports.

Your manager might pay for a repair using your rent. They then send you the invoice for your files. You must not claim this expense twice. You can only claim what you actually “incur” yourself.

Refinancing for both investment and private use is a major red flag. If you don’t apportion the interest correctly, the ATO will notice.

Under Tax Ruling TR 2000/2, you must split interest based on usage. You cannot simply “choose” to pay off the private part first. Every repayment must be split across the whole loan.

The ATO recently released Draft Ruling TR 2025/D1. They are now targeting properties that look like “leisure facilities.”

If you use your “investment” property for holidays, you may lose your deductions. You must prove the property is genuinely available for rent. Simply listing it online is no longer enough.

At Hunter Galloway, we help you structure your loans to simplify your tax. Don’t let a simple mistake turn into a costly audit.

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.

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.

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.