Claim Loan Interest? Here's How You Save Big (2026)

Are you wondering if you can claim loan interest on your taxes in Australia? It's a common question, particularly for those seeking to maximise their tax returns. Understanding how loan interest deductions work can potentially save you a significant amount of money each year. Let's dive into the details.

Understanding Loan Interest Deductions

In Australia, you can claim tax deductions on the interest paid on certain types of loans, but it's crucial to distinguish the purpose of the loan. Generally, the Australian Taxation Office (ATO) allows you to claim deductions on the interest if the loan is used to generate income. This is often the case with investment properties or business loans. However, personal loans or loans for private purposes, like buying a car or funding a holiday, do not qualify for interest deductions.

For instance, if you take out a loan to purchase an investment property, the interest on that loan is tax-deductible because it's considered a cost of earning rental income. Similarly, if you use a loan to finance business operations, the interest is generally deductible as it directly relates to income generation.

Key Information on Loan Interest Rates and Requirements

As of 2026, the interest rates for investment property loans typically range between 6.49% and 8%, depending on the lender and the borrower's financial situation. Business loan interest rates can vary widely, from 7% to 12%, based on factors such as creditworthiness and loan terms.

To qualify for these deductions, it's essential to maintain clear records showing that the loan's purpose was indeed for income-generating activities. The ATO requires documentation such as loan statements, receipts, and a detailed account of how the funds were used.

Steps to Claim Loan Interest on Taxes

Claiming loan interest as a tax deduction involves several key steps:

1. Determine Eligibility: Ensure the loan was used for income-generating purposes.
2. Maintain Documentation: Keep all relevant loan documents, including the loan agreement, statements, and proof of how the funds were used.
3. Calculate Deductible Amount: Determine the portion of interest that is deductible based on the loan's use. If the loan is only partially used for income generation, only that portion of the interest is deductible.
4. Complete Your Tax Return: When filing your tax return, include the deductible interest amount in the appropriate section. Use tax software or consult with a tax professional for accuracy.
5. Consult a Professional: Given the complexities of tax law, consider consulting a tax advisor or accountant to ensure compliance and maximise deductions.

Tips and Considerations

Here are some expert tips to help you navigate loan interest deductions:

• Review Your Loans Annually: Regularly assess your loans to ensure they are still serving your financial goals and that you’re claiming all possible deductions.
• Consider Refinance Options: With access to Esteb and Co's 83+ lender panel, explore refinancing opportunities to secure better interest rates and terms.
• Keep Personal and Business Finances Separate: To avoid complications, maintain separate accounts for business and personal expenses.
• Stay Updated on Tax Laws: Tax regulations can change, so stay informed about any new rules that might affect your deductions.
• Document Everything: Accurate and comprehensive records are your best defence in the event of an audit.

Frequently Asked Questions

1. Can I claim loan interest on my home mortgage?

No, interest on a home mortgage used for personal residence is not tax-deductible in Australia.

2. How do I prove that my loan is for an investment property?

Keep detailed records such as purchase contracts, loan agreements, and income statements from the property to prove the loan's purpose.

3. What if the loan is partially for personal use and partially for investment?

You can only claim the portion of the interest that corresponds to the income-generating part of the loan.

4. Are there any caps on how much interest I can claim?

There are no specific caps on the amount of interest you can claim, but it must be proportionate to the income-generating use of the loan.

5. Is refinancing an option to reduce interest rates?

Yes, refinancing can potentially lower your interest rates. Consult with a mortgage broker to explore options across different lenders.

6. Can I claim interest on a business loan used for a startup?

Yes, as long as the loan is used for business activities aimed at generating income.

7. How does claiming interest affect my tax return?

Claiming interest reduces your taxable income, which can result in a lower tax liability and potentially a higher refund.