Redraw from IP to invest in ETFs

Hi Isaiah,

Whether it’s worth it depends on what return you expect to get from ETFs. If you think it’ll beat your interest rate after tax, then it’ll be profitable to do so.

As for the tax question, yes, if the investment is income producing (which almost all ETFs are), then the interest will be tax deductible.

Technically, part of your interest then becomes claimable against your shares income rather than property income, but the net result is the same. I wouldn’t say it’s complicated, but a simpler way would be to create a new loan split for say 20k (or 10k if possible), and do it that way, so that your shares/property loans are separate which just makes it easier to track what is what.

Hope that helps.

Hello! It’s great to see you considering different strategies to optimize your investments. When it comes to deciding whether to redraw from your investment property (IP) loan to invest in ETFs, there are several factors to consider.

Firstly, the interest rate on your IP loan is 6.3%. If you decide to redraw $5,000 for investment in ETFs, the interest on this portion of the loan would indeed become tax-deductible, as it is being used for income-producing purposes. This is because the Australian Taxation Office (ATO) allows interest expenses on loans used to earn assessable income to be claimed as a deduction.

However, redrawing from your IP loan to invest in ETFs can complicate your tax situation. The key issue is ensuring that you can clearly demonstrate that the redrawn funds were used specifically for income-producing purposes. This means keeping meticulous records and possibly needing to account separately for the investment portion of the loan.

Moreover, when considering this strategy, it’s crucial to compare the expected return on your ETF investments against the cost of borrowing (after tax considerations). If the expected return on the ETFs, net of fees and taxes, exceeds the effective cost of the loan interest (considering the tax deductibility), this strategy might be financially beneficial.

As an alternative, you might consider whether you have other savings or less expensive sources of funds that could be used to invest in ETFs. This could avoid complicating your IP loan structure and potentially reduce the overall cost of borrowing.

Another option could be to simply increase your regular investment amounts into ETFs using your current disposable income, rather than leveraging your property. This avoids additional debt and keeps your investment property loan straightforward.

At Pearler, we focus on helping investors like you make informed decisions that align with your long-term financial goals. We provide tools and resources that can assist you in m

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