yes, CGT only applies when you have sold it. The 5 years you had rented it would be subject to CGT. I think it could work 2 ways:

Value at time income ceased – value at start = CG

or

5/30 years = 16% so 16% of overall gain.

Either way You would only have to pay tax on half of this gain if you have rented out half. You may then get the 50% CGT discount too.

Yes, IO loan still the way to go.

But get the new top up as a separate loan, and don't have the money from the top up placed into the offset as the interest won't be fully deductible.

Main residences are generally exempt from CGT.

Thats good,

but considered the tax ruling mentioned by Ashley?

Since you have mixed the borrowed money with savings then when you pay the interest on the loan only a small portion of the borrowings could be traced to the payment of interest.

I think there are 2 issues here.

1. The mixing of borrowed funds and savings = no full deduction.

2. Capitalising interest = generally deductible if the underlying interest is deductible, but the ATO can still disallow it under Part IVA.

If you want to go ahead:
1. Change the loan structure. t make it more likely you will get a full deduction.
eg split the loan. Have an IO loan with $10k in the offset against this. Then have a separate LOC to pay the interest. Put all cash into the offset, but no borrowings.

2. Have a good reason for not paying the interest on the IO loan each month. If this reason is to build up cash to pay for your PPOR down the track then the ATO will likely disallow the interest.

So you will be borrowing money and investing it in a savings account and mixing it with savings.

I would say the interest wouldn't be fully deductible. If you had no other funds in the offset then you could show the direct link and the funds would be uncontaminated.

Even assuming there was no savings in the offset then ATO could disallow it if it is a scheme just to increase tax deductions.

Later on if you take money out of the offset to pay for a private residence then this will make it even more mixed up as you will have borrowed money to buy a private asset.

Sounds like a less than ideal setup.

You will be mixing borrowings with savings.

1. This is dangerous. Technically you would be borrowing money and placing it into a savings account. If you have no money in this offset account other than the borrowed money, then the ATO could allow it as the funds are traceable. But you are also borrowing to pay interest, and the ATO may not be so happy with this, although it is technically allowable.

If the offset account contains any other funds, such as savings, wages, etc, then this is even more dangerous. Especially if you withdraw funds later for personal use.

2. You want to stop paying and then let the loan interest accumulate up to the original limit. This is a good idea, but also risky as the ATO could also disallow this if it is a scheme to just make a tax deduction.

Unless the loan is a LOC you may also find the bank will consider this a missed repayment and a default, even if you are ahead.

I would suggest you get a private ruling before doing either.

You can split the loans as you wish, but if you want to deduct the interest you should do so in a tax effective manner.

Your current loan is $210,000. If you move out and rent this apartment then the interest on this should be deductible.
But if you increase this loan to $400,000 you have to look at what use the extra $190,000 is put. It seems you will be borrowing more to buy a private residence, so the interest on this extra $190,000 likely would not be deductible.

Having a combined loan like this would disadvantage you.