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It depends on why you are doing it this way and your overall structure.

Also you have to remember the ATO is not going to be ruthless and they will probably allow a deduction in most cases. I have a friend who was audited and he was one of those who transfer money from a loan increase into a savings account, and intermingles it too, and the ATO didn't pick up on it...

This is not correct. If you were borowing at 7% and putting it into a savngs account at 8% you could claim the interest - and end up with 1% profit.

You cannot claim a deduction on borrowings at 7% to invest into a savings account paying 5% - it is not commercial and wouldn't be allowed.

Just have a look at some of the links above, or do a search on the numbers, and see some actual private rulings which may help you phrase your questions.

I don't think it is complicated. It is logical really. If you borrow money for an investment then the interest would be deductible. If you borrow to put into a savings account then it is no longer borrowings.

Technically borrowed funds are no longer borrowed funds when they are placed into a savings account. Whether the ATO will be this strict with enforcement is another matter. How to apply for a private ruling...

There is not much you can do now. At least console yourself that probably 80% of people taking out extra money are setting it all up wrongly.

Those PBR links are not working now (I had them saved previously). You could probably find them by doing a search on the ATO website.

If you are concerned about whether interest on interest would be deductible have a look at: TD 2008/27 http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD200827/NAT/ATO/00001 which basically says the principles governing the deductibility of compound interest are the same as those governing...

Hart's case involved a scheme which enabled a connected loan product to capitalise the interest on the investment portion and thereby divert funds to quickly pay off the non-deduction home loan portion. Does really relate to this offset account model, and it doesn't specifically apply to the...

Domjan and Commissioner of Taxation) [2004] AATA 815 http://www.austlii.edu.au/au/cases/cth/AATA/2004/815.html This will be a good read, although it is slightly different in this situation because there is no intermingling of funds.

Steele was about claiming deductions on land before the contruction of an investment property. its about claiming interest too soon, so don't think it is too relevant to this one. There is another case - Domjan - which covers this situation. From memory the deductibility of interest was...

Would any accountants out there like to comment on this? ie the borrowing and parking in the offset account until use.

The interest on this loan should be deductible. You also have an additional loan of $40,000 (even though it may be in the same loan number) which you have borrowed to invest into a bank account which doesn't pay interest. Strictly speaking you cannot claim the interest on this loan...

So what was the original loan before refinancing?

Now the $40,000 is no longer borrowed money. So even if you spent the lot the interest on this part wouldn't be deductible I'm afraid.

It sounds like you have borrowed money to place into an offset account? The interest on borrowings is only deductible to the extent that you have invested it or purchased income producing assets etc. This money is no longer borrowings once it hits the account. It is then cash. Therefore none of...