Refinancing your home loan can offer a range of benefits, from lowering your interest rate and monthly repayments to accessing equity to fund renovations or investments. However, it’s important to consider the tax implications of refinancing before making any decisions.
Firstly, it’s worth noting that in Australia, home loan interest is generally not tax-deductible unless the loan is used for investment purposes. If you refinance your home loan to fund an investment property, for example, you may be able to claim the interest as a tax deduction. However, if you refinance your home loan to access equity for personal use, such as a new car or holiday, you won’t be able to claim any tax deductions.
If you refinance your home loan and increase your loan amount, you may also be subject to additional stamp duty costs. In most states and territories, stamp duty is payable on the mortgage amount, so if you increase your loan amount when refinancing, you’ll likely pay more stamp duty.
It’s also important to consider any potential capital gains tax (CGT) implications if you’re refinancing an investment property. If you sell the property within 12 months of refinancing, the ATO may consider the refinancing to be a “wash sale,” which means the CGT discount may be denied. Additionally, if you’re refinancing to access equity and then using that equity to purchase another property, you may be subject to CGT on any capital gains from the sale of the original property.
If you’re refinancing to consolidate debt, such as credit card debt or personal loans, there may be tax implications to consider as well. While consolidating debt can be a smart financial move, it’s important to understand that you won’t be able to claim tax deductions on the interest you pay on the consolidated debt.
One potential tax benefit of refinancing is the ability to claim tax deductions on the fees associated with refinancing. This can include application fees, valuation fees, and legal fees. These fees are generally deductible over the life of the loan, so it’s important to keep good records and speak to a tax professional to ensure you’re claiming everything you’re entitled to.