The Australian property dream has changed. In 2025, with capital city prices locking out many first-time buyers, a new strategy has taken over: Rentvesting.
Rentvesting is the strategy of renting a home in your desired lifestyle location (where you can’t afford to buy) while purchasing an investment property in a more affordable growth suburb. It allows you to enter the property market and build equity without sacrificing your lifestyle. But for many, the deposit hurdle remains, leading them back to the ‘Bank of Mum and Dad’.
Here is the secret that most families miss: unlike borrowing money for a home to live in, borrowing money from your parents for Rentvesting opens the door to powerful tax deductions—but only if you follow the rules.
The “Good Debt” Advantage
In the eyes of the ATO, not all debt is created equal.
- Bad Debt (Non-Deductible): Money borrowed to buy a car or the home you live in (your Principal Place of Residence). You cannot claim the interest costs on your tax return.
- Good Debt (Deductible): Money borrowed to buy an income-producing asset, like an investment property. The interest costs are generally tax-deductible.
The Family Loan Opportunity If your parents lend you $100,000 to help buy a Rentvesting property, that loan is technically “investment debt.” This means the interest you pay to your parents could be claimed as a tax deduction, effectively lowering your taxable income and helping to pay off the loan faster.
For the parents, the interest they receive is taxable income, but for the family unit as a whole, this structure can be far more tax-efficient than a simple cash gift or an informal interest-free loan, especially if the child is in a high tax bracket.
The Catch: No Paperwork, No Deduction
This is where the strategy falls apart for most families. The ATO is extremely strict about deductions for related-party loans. You cannot simply claim a deduction for cash handed over at a Sunday BBQ.
To legitimise the Rentvesting loan and claim the deduction, you must prove a commercial relationship exists:
- Formal Written Agreement: You must have a signed loan contract specifying the loan amount, the interest rate, and the repayment schedule.
- Commercial Interest Rate: While you don’t always have to match the bank perfectly, charging a rate consistent with the ATO benchmark strengthens your claim that the loan is a genuine investment arrangement.
- Proof of Payment: You cannot just “accrue” interest. You must physically transfer the money to your parents, and they must declare it. The paper trail of these transfers is your audit defence.
Without these three pillars, the ATO will likely deny your deduction and classify the arrangement as a private domestic agreement, leaving you with all the debt and none of the tax benefits.
Why Rentvesting Needs a “Prenup”
Beyond tax, Rentvesting often involves buying with a partner. If you are borrowing from your parents to buy an investment asset with a boyfriend or girlfriend, you are entering a high-risk zone.
If you break up, the investment property is an asset of the relationship. Without a formal loan agreement proving that the $100,000 from your parents is a debt that must be repaid, the Family Court may view it as a gift to the couple. Your ex-partner could walk away with half of your parents’ money. A formal loan agreement ensures the parents get paid back before any profit is split.
🛡️ Smart Rentvesting Starts with Chipkie
Rentvesting is a sophisticated strategy that demands sophisticated administration. Don’t let a “handshake deal” cost you thousands in lost tax refunds. Chipkie is the platform designed to formalise your family lending. We generate the legally binding loan contracts required to satisfy the ATO and secure your deduction. Our platform tracks every interest payment, creating the professional audit trail you need to prove your Rentvesting strategy is legitimate. With Chipkie, you get the safety, certainty, and transparency needed to build wealth with family support.
Disclaimer
Disclaimer: The information provided in this article is for informational purposes only and should not be considered financial advice. We always recommend consulting with a financial professional before making any financial decisions.
