Article

Smart ways to use offsets, splits and redraw under new tax rules

How to use loan splits, offsets and redraw to separate pre‑ and post‑reform debt on each property so you can protect interest deductibility and stay ATO‑ready.

9 Sept 2026Updated 9 Sept 20268 min read

Key Takeaway

This guide explains how Australian property investors can use loan splits, offsets and redraw to track pre‑ and post‑reform borrowing on each property for the 2026–27 negative gearing changes. It outlines why offsets do not change loan purpose while redraw does, and shows how to label splits so interest remains deductible under ATO tracing rules. A worked example and one‑week action plan give readers a concrete structure they can implement with their broker or accountant.

Smart ways to use offsets, splits and redraw under new tax rules

From this week, the cleanest way to track old versus new tax rules on each property is to use labelled loan splits for every borrowing event, match offsets to those splits, and avoid using redraw for everyday spending. That structure lets you show exactly which interest is deductible under the pre‑reform rules and which sits under the tighter post‑2026 regime.

In a world of shrinking negative gearing benefits, how you bank day‑to‑day matters almost as much as which property you own.

Diagram of loan splits and offsets for property investors Use clean, labelled splits and offsets to keep each loan purpose and rule set separate.

1. Why the new tax rules make structure and banking critical

From the 2026–27 Budget changes, many residential investments bought or geared after the start date will have rental losses quarantined or capped rather than fully offset against wages.

Two things follow:

You must be able to show which interest relates to a grandfathered (old‑rules) property or loan.
Mixing uses in one loan or redraw line can permanently blur deductibility.

APRA’s 3% serviceability buffer and higher rates (RBA, 2026) mean there’s less room for sloppiness. Good structure protects both your tax position and your borrowing power.

If you’re still setting everything up under one big blended loan, start with clean structures for your first couple of investments, then refine your banking around that.

2. Offsets vs redraw vs splits: what they actually do for tax

The key to tracking old vs new rules is understanding how each tool interacts with ATO tracing rules.

2.1 Definitions in plain English

Loan split: a sub‑loan under one facility. Each split has its own balance, rate and purpose.
Offset account: a separate bank account whose balance reduces the interest charged on its linked loan or split. Moving money in/out does not change the loan’s purpose.
Redraw: access to extra repayments you’ve made on a loan. Taking money out changes the purpose of that portion from the date of redraw.

2.2 Tax effect comparison

Feature / tool	Loan split	Offset account	Redraw facility
Changes original loan purpose?	No (fixed by how funds are used)	No (balance is just cash, not a new loan)	Yes – each redraw is a new borrowing with its own purpose
Best primary use	Separate each investment / rule set	Park cash, manage cashflow without affecting deductibility	Temporary access to extra repayments; avoid for spend
Helps track old vs new rules?	Yes, if clearly labelled	Yes, when matched to correct split	Usually makes tracking harder
Everyday spending friendly?	Not applicable	Yes – ideal for bills/salary routing	Risky – easy to taint deductibility

As set out in our guide on quarantining investment and personal debt, using offsets rather than redraw for daily cashflow is critical because redraw changes loan purpose while offset movements don’t.

3. Mapping old vs new rules onto each property

3.1 Step 1: List every borrowing event For each property, write down: - Original purchase date and loan amount. - Major subsequent borrowings: renovations, equity releases, refinances. - What each borrowing was used for (deposit, costs, renos, another property, business, personal). Pre‑reform vs post‑reform status turns on dates and purpose, not just the property name. ### 3.2 Step 2: Design your target split structure Your goal is one main loan per property, with multiple purpose‑based splits where needed (a principle we use across our portfolio work and in articles…

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Frequently asked questions

How do I keep investment and personal debt separate in practice?▾

Give each purpose its own loan split and avoid using redraw for mixed spending. Run your salary and bills through an offset linked to your home loan, and pay investment expenses from a dedicated investment account funded by the relevant investment split. That way each dollar of interest can be traced back to a clear use if the ATO ever asks.

Do I need a separate offset for every property?▾

No, in most cases you don’t. One main offset, plus one or two secondary offsets at most, is usually enough. The key is having clearly labelled loan splits by purpose; offsets mainly manage cashflow and don’t change loan purpose. Too many offsets can actually make tracking harder and add bank fees.

Can I fix the mess if I’ve already mixed redraw and personal spending?▾

Yes, but it requires careful reconstruction of what each redraw was used for. An accountant can help apportion the current balance between investment and personal use, then you can refinance into new, clearly labelled splits. From then on, use offsets rather than redraw for everyday expenses to avoid repeating the issue.

Is it worth splitting loans if my properties are nearly paid off?▾

If your remaining balances are small and you’re not planning more borrowing, the benefit of complex splitting may be limited. Splits are most valuable for larger loans, active investors, and anyone using equity releases or debt recycling. In those situations, getting the structure right can materially improve tax outcomes and flexibility.

How often should I review my loan and offset structure?▾

Review your structure lightly once a year and more deeply whenever you buy, sell, renovate, release equity or tax rules change. The 2026–27 negative gearing reforms are a strong trigger to review existing loans so you can clearly separate grandfathered debt from post-reform borrowing and avoid future disputes over deductibility.

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