Making loan deductable

When a re-draw is made from a loan (IP or PPOR), then we all understand the ATO considers this a "new loan", and interest deductability tests will apply. But does the ATO still apply the same rules in reverse situation?

You have a PPOR loan and some cash in offset account (good place to put cash in case PPOR becames an IP one day). If cash is used for investing, no deductable interest is created and non-deductable increases. Not the most efficient arrangement.

So, put the cash into PPOR loan instead, then redraw to make that "new loan". Interest will be deductable if used to produce income (IP, shares etc)

Is this ATO safe ?
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hey how about this...
PPOR Mortgage 300k, 30K in offset= interest paid on 270k.
you then decide to use 30K in offset for deposit on an IP and turn PPOR into IP. you now have 2IPs and all interest on mortgages would be deductable,right? hence total 300k interest would be deuctable. thoughts...?
Hi Natedog,
the theory seems correct. However, since you won't be living in either of the properties any rent (or other mortgage payments) for your new residence won't be deductable. Great if you can live with rellies cheaply or for free!