Mixed Business and Private Loans: Trace the Money
Trace every drawdown through the bank account to what the borrowed money actually funded. Keep private purchases, repayments, redraws and refinancing visible in date order. Calling an account a business loan does not settle interest deductibility. A mixed-purpose balance needs a supported history and an allocation reviewed for the particular borrowing arrangement.
What you’ll get from this guide: Prepare a funds-use register that reconciles borrowed money to purchases and records the events that can change its treatment.
- Trace money to its use rather than relying on the account label.
- Keep repayments, redraws and changed uses as separate dated events.
- Have mixed-purpose interest calculations reviewed for the actual facility.
For borrowing used for both business and private purposes, build the transaction history first. Have the tax allocation checked before using it to claim interest.
Start with the original borrowing documents
Keep the loan agreement, borrower identity, facility type and complete statements. Identify any sub-accounts and distinguish a redraw facility from a separate offset account. They should not be treated as interchangeable merely because both are visible in online banking.
Record how the money moved through intermediate accounts. If a drawdown first arrived in an everyday account, the trail continues to the supplier or private purchase. An account name is not a substitute for that evidence.
Fictional $20,000 drawdown into a transaction account. The starting use is known, but it is not a permanent interest percentage.
| Movement | Amount | Destination or evidence | Question |
|---|---|---|---|
| Loan to transaction account | $20,000 | Bank transfer L01 | Preserve both sides of transfer |
| Transaction account to equipment supplier | $14,000 | Invoice E44 | Link to asset and ownership |
| Transaction account to private purchase | $6,000 | Private purchase P18 | Keep private use explicit |
| Later principal repayment | $2,000 | Loan statement R02 | Agent to assess allocation |
| Later redraw | $1,500 | Bank reference D03 | Trace the new use separately |
The initial $14,000 and $6,000 reconcile to $20,000. The later repayment and redraw are separate events; no interest deduction is computed.
Do not carry the first percentage forward unchanged
The ATO's TR 2000/2 ruling addresses specified line-of-credit and redraw arrangements. It examines the use of borrowed money and describes proportionate allocation of principal repayments on mixed-purpose balances, with exceptions. A later redraw must be traced to its new use.
That means the original equipment purchase cannot automatically justify applying the same percentage to every later interest charge. Selling the asset, redirecting the proceeds or refinancing can add further questions.
Reconcile events, not just the closing balance
Build the dated register from statements and source documents. Separate principal, interest and fees. Mark unexplained transfers rather than labelling them business by default. If an amount was returned by a supplier, link the refund to the original purchase and record what happened next.
Borrowed-funds use register
Copy the template, save a text file for offline use, or print this page with its examples and sources. Fill in your own copy and check it before relying on it.
Borrower and facility type: Agreement / loan account / relevant sub-account: Date Drawdown / use / repayment / redraw Amount From account To account or supplier Actual purpose Source document Unresolved allocation Refinance, asset sale or changed use: Agent-reviewed calculation reference:
Give the tax agent the full sequence
Send the agreement, statements and register together, including the private entries. Ask for the allocation method, relevant exceptions and any correction to previous claims to be documented. TR 2000/2 does not cover every refinancing or capitalised-interest arrangement, so confirm its scope rather than applying a summary mechanically.
Link equipment purchases to the asset register. Use the business loan guide when comparing finance products.
Key takeaways
- Trace money to its use rather than relying on the account label.
- Keep repayments, redraws and changed uses as separate dated events.
- Have mixed-purpose interest calculations reviewed for the actual facility.
Where to get help
Use a registered tax agent for interest deductibility and allocation, and the lender for missing statements or facility documents. The tax records hub groups the supporting templates.
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Where to go from here
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General information only. This guide doesn't take your personal or business circumstances into account and isn't financial, legal or tax advice. Rates and thresholds change — check the official sources linked in this guide and get qualified advice where your circumstances require it.