Under Australian Taxation rules, the Australian Taxation Office (ATO) does not care about where the money came from or indeed what security is provided, in determining the tax deductibility of the loan.
The only issue that matters is where the money went on the day the bank handed the cheque over to you.
For any loan, whether from a bank, friend or family, as long as you can show the money went to purchasing the property when it was advanced, then any interest cost is allowed as a tax deduction against that property when there is rent collected.
It does not matter that your loan maybe through an offshore bank, as long as the loan proceeds went to acquire your Australian investment property.
If the loan is in a currency other than Australian Dollars, then the tax claim is the interest cost converted at the appropriate exchange rate at the time
If you refinance the loan to another bank along the way, the ATO will follow the paper trail back to the original loan and preserve its original status.
The important thing to watch out for is when you make advance payments on your loan and then decide to get some of that money back, maybe to go on a holiday.
This causes problems because that redraw is actually a “holiday loan” as that was where the money went when the bank gave it back to you. It may seem unfair, but that is how the ATO looks at it.
It is far better to resist the temptation to pay off your loan if you have some “spare cash”, as if you need it back it could have an adverse impact on your tax position.
This would not apply if you draw down for another Australian Investment property, as it would then become a tax deduction on the new property.
