Yes, you can generally continue to claim a tax deduction for the interest even after converting a variable loan to a fixed loan—provided the purpose of the loan remains income-producing.
The key factor the ATO looks at is what the loan is used for, not whether it’s fixed or variable. If the loan was originally taken out to acquire an investment property, shares, or any other income-generating asset, the interest on that loan remains deductible—even if you change the loan type.
It’s important to understand that deductibility follows the purpose, not the loan structure.
That said, here are a few considerations:
- Redrawing for personal use: If you redraw from the loan for private expenses (like buying a car or funding a holiday), the interest relating to that portion will no longer be deductible.
- Splitting loans: When refinancing, it’s wise to split loans to clearly separate investment and personal components, which makes recordkeeping and deductibility much simpler.
- Break costs: If you break a fixed loan early (to lock in a new rate or refinance again), you may incur break fees. These are not immediately deductible, but they may be amortised over five years or the remaining term of the loan—whichever is shorter.
So, in short, yes—switching from a variable to a fixed loan doesn’t affect your interest deduction as long as the loan is still for an income-producing purpose. Just make sure it’s structured right and keep good records.
If you’re refinancing or considering loan changes, it’s a good idea to check in with your accountant or tax adviser to ensure you’re not unintentionally affecting your deductions.
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