Perhaps to make it easier/clearer on you/ your accountant and ATO going forward - for the loan you are intending to debt recycle - ask your bank to formally split the loan into 2 separate loans as a first step in the process:
So 1 loan of $100k becomes 2 loans $50k each.
Pay down one loan to zero, and now use funds for your income producing activities (and tax deductible interest).
Much cleaner than needing to keep tabs on with proportions of a single loan are deductible/non-deductible.
Tom, just so i understand it right....you are suggesting divide the 100K into two separate loans (50,50)...use your offset's 50k to pay off one of the loan and then re borrow it again..
in this case can you borrow all of your 50K back....or only portion of it....