I reckon there will be some issues with this arrangement. I'm no expert but I think the contract between you and your father might raise doubts about the purpose of the loan and whether it is at arms length and therefore elegibile for all of the normal negative gearing benefits. Particularly if the "rate" of this loan is significantly below the market rate. You could end up in a worse situation where the income generated from this property is still fully assessable but your deductions have been greatly reduced through being partially or wholly disallowed by this unorthodox loan arrangement.
It will almost certainly have some impact on your father but this will depend on his situation.
Maybe old hat but if it was me, I would be seeking advice direct from the tax office (possibly via a private ruling) before I did anything about it. I think you need to speak to a good accountant at the very least.
