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I own and rent out an apartment in a building that needs extensive repairs. The body corporate has broken the levy for the repairs into six payments.

For the first three payments, last tax year, I paid them from a separate account I opened expressly for this purpose, then, when I re-fixed the mortgage, I transferred the balance of that account to the mortgage. In the meantime there were interest payments on the overdraft, which were clearly tax deductible.

This year I am doing the same thing for the next three payments, but in the meantime I have paid off my personal overdraft, and have a savings account where I keep the money I owe the IRD (I pay GST and provisional tax every six months). I want to transfer money from this account to the repairs account to avoid paying interest on the overdraft, which is at a far higher rate than the interest on the savings account.

My question is, if I do that, then transfer that money out again when I need to pay taxes, is the resulting interest still tax-deductible?

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TL;DR: Yes.

Finally got a response back from my accountant. Yes, if I transfer money from a personal savings account to pay off a business overdraft, then transfer that money back again, the interest that accrues on the overdraft is a deductible expense.

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