Just to clarify:
If I were to move the money direct from the redraw part of the account into the offset part of the account this would "create a new loan with every withdrawal"?
Yes, every withdrawal is treated as a new loan. So deductibility on the interest on that withdrawal will depend on what the funds where used for.
[/QUOTE]
Would that mean that even though both are for investment purposes (and not being mixed with personal expenses) that somehow it would be termed - non-deductible?[/QUOTE]
If the withdrawn funds were used for investment purposes then it may not be an issue.
But if the withdrawn funds were parked in a savings or offset account, even termporarily, then the interest would not be deductible. This could then create a vast mathematical problem for the claiming of interest.
e.g say your loan was $100,0000 and you accidently paid it down by $1000. You decide to transfer this $1000 back to your savings account.
Now only 99% of the interest each month is deductible.
Imagine if you did it again or if your loan was PI. That would mean every payment into the loan would have to come off the deductible and non deductible portions in accordance with the percentage of deductibility of the loan.
So you pay another $1000 into the loan by mistake. 99% of this would come off the $99,000 investment portion and 1% off the non investment portion. so $99,000 - $999 = $98,001 etc etc
Its too much a pain in the butt already to worth out..