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In this case it will be mixing borrowed and unborrowed. This is the trouble with borrowing small amounts - it is hard to manage. At the very least set up a new savings account for these funds, but seek tax advice before doing anything.

Search for the Domjan case - paragraph 42 from memory.

2 issues. 1. Borrowing to pay interest. Generally deductible if underlying interest deductible but ato can deny the deduction. 2. Mixing borrowed and non borrowed money. Interest won't be fully deductible.

Doesn't matter how long the money sits in an account. 1 min of mixing borrowed and non borrowed would mean interest denied in full.

Yes. It all depends on how it is done. And I don't know of any TD or TR, only a private ruling. Deductibility can be ruined if borrowed money is mixed with non borrowed money, easy to be done with an offset account - even accidently.

I was thinking more along the lines of the borrowed money being used to pay the interest and TD 2012/1. But you are right, borrowing and parking in an offset is another issue and could ruin the deductibility

have you sought tax advice on the deductibility of interest for this?

The loan for the shares could possibly be changed over to be securred by the shares themselves - what LVR would it be? ie value of the shares to the loan for the shares. It would be very dangerous with margin calls if the shares drop.