Investing with home loans.
I have a question about tax deductibility, if I withdraw money from my
owner occupied home loan, then
invest in shares. Is the interest on the extra money drawn tax
deductible, what proof is required ?
Doing this without having a separate account is going to be very messy from the accounting perspective, because the ATO will consider all repayments to that account to spread evenly across both the deductible and non-deductible portions of the loan.
For example, let's say you have a $100K loan, with available equity of $20K. You decide to withdraw the available $20K and buy dividend-paying shares (this is essential if you wish to make a claim in the current financial year - no dividend = no income generated from the borrowings, so no interest deductibility at this point in time). You then have a balance owing of $120K, of which the interest on $20K is tax-deductible. Thereafter, each repayment you make will be treated as being 5/6 in the home loan, and 1/6 against the shares, thus reducing the amount (originally $20K) for which the interest is deductible. This is not only complicated, but it is inefficient, since you should, for greatest savings, be ONLY making principal repayments on the non-deductible portion of the loan, and limiting your repayments against the shares to interest-only, and doing it the way you suggest prevents this from being possible.
Fortunately, your friendly bank manager should be able to set you up with a split or portfolio loan (e.g. SGB's Portfolio Loan, CBA's Viridian loan, etc) whereby there is effectively two separate loans against your house, and you can keep the transactions separate and distinct - ideally you would make the sub-account for shares interest-only (at least until such time as your home loan is fully paid off anyway) and concentrate on paying off your home loan.
Please note that this is not financial advice, since I am not a financial advisor, but it is the setup that was recommended to me by my accountant, and is how my own finances are set up.