Glossary · Australian property
Equity release.
Pulling cash out of property by refinancing or topping up the existing loan against the property's grown value. Common funding source for next-IP deposits, renovations, or business capital. Interest-deductibility rules under ATO TR 2000/2 dictate which uses are tax-effective.
Mechanic: lender refinances or tops up your loan; the increase is paid out as cash. Cap is typically 80% LVR before LMI applies. Lender re-runs full serviceability and valuation. Grown property value plus amortised principal balance create the equity headroom.
Deductibility (TR 2000/2): the deductibility of interest on borrowed funds depends on the USE of the funds, not the security. Interest on equity released for investment purposes (next-IP deposit, share-portfolio buying, business capital) is tax-deductible. Interest on equity released for personal use (renovating your home, buying a car, holiday) is NOT deductible. Mixed use means split-loan structure required to maintain deductibility traceability.
Best practice: separate split facility per equity-release event. Don't co-mingle with the existing home loan. Document the use date, invoice, and transfer trail. ATO's view (ID 2003/353): contamination at any point during the loan's life can taint deductibility going forward. Once mixed, very hard to un-mix.
Alternatives to weigh: line-of-credit facility (revolving, but limited tax-traceability), separate IP loan against the new property's purchase (cleaner traceability, no equity-release needed if deposit is from savings), reverse mortgage for retirees (different structure, capitalised interest, regulatory carve-outs).
Worked example
PPOR worth $1.4M, current loan $400K. Refinance to $1.0M ($600K cashout). $400K of cashout goes to deposit on $2M IP. That $400K is a deductible-interest tranche. $200K goes to home renovation. That $200K is non-deductible. Lender splits the $600K into two facilities; accountant maintains the trail.
Source
ATO TR 2000/2 (deductibility of interest); ATO Interpretive Decision ID 2003/353 (mixed-use loans).
Related terms
Open the playbook — 11 chapters end-to-end, every threshold cited.