For many Australians, real wealth is quietly sitting in their homes as untapped equity. But what if you could unlock that equity, invest it into low-cost index funds, and legally claim the interest as a tax deduction?

Even better — what if you could keep the loan in joint names, but still allow one spouse to claim 100% of the deduction?

Let’s break down this smart, tax-efficient strategy that combines property, shares, and clever structuring.

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🔓 Step 1: Release Equity from Your Property

If you have built up equity in your home or investment property, you may be able to access it through:

• A loan split
• A line of credit
• Or a cash-out refinance

This gives you investable capital (e.g. $50K–$200K) without needing to sell the property.

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📈 Step 2: Invest in Low-Cost Index Funds

Rather than buying another property, you can use the released equity to diversify your portfolio with index funds like:

• VAS – Tracks the ASX 300, giving exposure to Australia’s largest companies
• IVV – Tracks the S&P 500, giving exposure to top US companies like Apple, Microsoft, and Amazon

These funds are:

• Simple to manage
• Low-fee (0.04%–0.26%)
• Designed for long-term, passive growth

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🧾 Step 3: Claiming Interest Deductions — What the ATO Cares About

The ATO allows interest deductions on borrowings used for income-producing purposes — such as buying shares that pay dividends.

However, if the loan is in joint names, and only one spouse owns the investment, the ATO typically considers the interest to be split 50/50. That means you might miss out on claiming the full deduction, even if one spouse funded the entire investment.

Why? Because both borrowers are jointly and severally liable for the debt.

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⚖️ Solution: Use an On-Loan Agreement

Here’s the smart workaround: a tax lawyer can draft an on-loan agreement that allows one spouse to claim 100% of the interest deduction, even when the loan is in both names.

✅ With an on-loan agreement:

• Spouse A borrows their portion of the loan from Spouse B
• Spouse A uses 100% of the funds to invest in income-producing assets (like ETFs)
• Spouse A becomes fully responsible for the use of those funds
• The loan interest becomes fully deductible for Spouse A

The key? Documenting everything clearly — especially fund usage and ownership.

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🔁 Alternative: Restructure the Loan

You can also refinance or split the loan into one spouse’s name only, then invest in that spouse’s name.

This achieves the same result (full deduction), but may require:

• More admin
• Credit assessment
• Lender approval

The on-loan agreement route is often faster and cheaper — especially if you’re already on a joint mortgage.

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🧯 Common Mistakes to Avoid

• Redrawing funds from a joint loan and investing in only one name
• Using offset/redraw accounts with mixed personal and investment use
• Assuming asset ownership = deduction entitlement
• No documentation of how funds were used

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🧠 Final Thoughts

Releasing equity to invest in low-cost index funds is a powerful, flexible wealth-building strategy — especially if you’re working toward financial independence.

✅ With the right setup, you can:

• Keep your loan in joint names
• Invest under one spouse’s name
• Claim 100% of the interest deduction using an on-loan agreement

That’s compound growth + tax efficiency + smarter asset allocation, all in one.

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📬 Bonus for Fivesters

Want help setting this up? Or a free checklist for how to document your investment loan properly?

Drop your email below — I’m working on a toolkit for readers who want to maximise their equity and minimise their tax.

⚠️ Disclaimer

The information in this article is for general education and informational purposes only. It is not intended as financial, tax, or legal advice and should not be relied upon as such. You should seek professional advice tailored to your personal circumstances before making any financial decisions.