Are Bank Loans Tax Deductible? Uncover Relief (2026)

It's a question many Australians ponder, especially come tax time: are bank loans tax deductible? Understanding the tax implications of your loans can be a game changer for your financial planning. Whether you're a small business owner, property investor, or simply managing personal finances, knowing what you can and can't deduct can help you make smarter financial decisions.

Understanding Tax Deductibility of Bank Loans

When it comes to bank loans, understanding what portion, if any, is tax deductible can be complex. Generally, the interest on loans taken for income-producing purposes is deductible. However, the principal amount of the loan is not. This means if you've taken a loan to buy an investment property or to invest in your business, the interest you pay on that loan might be deductible. It's crucial to differentiate between personal and business loans, as personal loans typically do not offer tax-deductible interest.

Interest Rates, Requirements, and Options

As of 2026, interest rates in Australia vary based on the purpose of the loan. For investment loans, interest rates range from 6.49% to 8.5%, while personal loan rates hover between 9% and 12%. To qualify for these loans, lenders typically require proof of income, credit history checks, and in some cases, collateral.

With access to over 83 lenders, Esteb and Co can help you navigate through the myriad of options available, ensuring you find the best rate and loan type to suit your needs.

Steps to Determine Loan Tax Deductibility

To determine whether your loan interest is tax deductible, follow these steps:

1. Identify the Purpose: Clearly define whether the loan is for personal use or income-producing activities.
2. Separate Expenses: Maintain clear records separating personal and business expenses to avoid confusion during tax season.
3. Consult a Tax Professional: Engage with a tax advisor or accountant to confirm the deductibility of your loan interest. They can offer personalised advice based on your financial situation.
4. Review ATO Guidelines: Regularly check the Australian Taxation Office (ATO) website for updates to tax laws and guidelines related to loan deductibility.

Tips and Considerations

Here are some expert tips to keep in mind when dealing with loan tax deductibility:

• Maintain Accurate Records: Keep all loan documents, interest statements, and any related receipts organised and accessible.
• Consider Loan Splitting: If a loan is used for both personal and income-producing purposes, consider splitting the loan to clearly define deductible and non-deductible portions.
• Utilise Professional Services: Using a mortgage broker like Esteb and Co can help you find the most tax-efficient loan products from a diverse panel of over 83 lenders.
• Stay Informed: Tax laws can change, and staying informed will help you maximise deductions legally and ethically.

Frequently Asked Questions

1. Can I deduct the principal repayment of my loan?
   No, only the interest paid on loans for income-producing purposes can be deducted.
2. What if I refinance my loan?
   If the refinancing is for the same income-producing purpose, the interest should remain deductible.
3. Are there any loans where the entire amount is deductible?
   Generally, only the interest portion is deductible, not the principal.
4. How can I ensure I'm claiming the right deductions?
   Consult with a tax professional and keep detailed financial records.
5. Is the interest on a car loan deductible?
   Only if the car is used for business purposes and the interest is related to income production.
6. What if my loan is partially for investment and partially personal?
   Consider loan splitting to segregate deductible and non-deductible portions.