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That is strange, if we assume your marginal tax rate is 30%, $1000 placed in the high interest account would earn, say, $50 in a year. But you'd be taxed $15, so you are better off by $35. If you place the $1000 in your mortgage you save about $65. With negative gearing you get back $19.50...

Do you have a PPOR already? If so, definitely have an offset against that loan If not, you should still open an offset account against the IP loan, then you won't have to pay tax on any interest that the money would otherwise sit in an interest bearing account. You still come out on top even...