Wife doesn't work and the managed funds are in your name? Does wife have an income?

Sorry, I must have misread up above.

If you are only taking money from an offset account then there would be no tax issues.

Nope.

I am a CTA – chartered tax advisor, solicitor and a broker though. Fin planning soon.

Thanks Derek, but I am many things but am not an accountant.

Doesn't make sense, logic is missing!

you are proposing to borrow money and investing it into a savings account = interest not deductible.

You will be mixing borrowed money with non borrowed money = even more not deductible!A

And you will be using the funds in the offset to buy a private residence = prima facie interest not deductible.

further more the original loan would end up a mixed purpose loan and cause all sorts of other difficutlies in calculating and apportioning interest.

You can see why you need tax advice

I would prefer the use of the offset account rather than paying down the loan.

Things can change. So you may decide not to move into your Brisbane house again and buy somewhere else to live in. If you had paid it off this will cost you a fortune in extra tax. Why not consider a IO loan with a 100% offset? This will allow you to save the same interest but keep a large loan just in case. In 4 years you could have $440,000 in the offset and $440,000 owing still but no interest being paid. At this stage if you decide to move in you can pay off the loan/keep it as is incase you move out.

If you want to use the $85k whatever you do don't take it out of redraw as this will create all sorts of problems and you will end up paying more tax. Set up a separate LOC on this property and borrow this $85k. This will then be segregated and you can claim the interest separately from the main house loan.

Of course there would be restrictions.  THe land would be worth much more than $1 and this is being done to help the town economically.

Probably such as:

1. Must build on it within x months

2. must be owner occupied.

The definitive answer is found in s 8-1 ITAA 1997.

(1)  You can deduct from your assessable income any loss or outgoing to the extent that:

                     (a)  it is incurred in gaining or producing your assessable income;

……

You surely mean "I wish now I hadn't gone through that broker.

Just because most are clueless doesn't mean all are. (from what I see at training sessions etc most are clueless)