I have to disagree with Catalyst.

If you were to take money from your offset to pay for investment expenses then the interest on your non deductible home loan would increase – but you couldn’t claim it. At the same time your investment loan would be lower, resulting loss of money by paying more tax.

Having a IO loan with offset is good when you have plenty of equity. Then you could use a LOC and borrow for investing and keep the money in the offset.

If you don’t have equity to do this it would be better to pay the money into the home loan and then reborrow it, as a separate split of course, and use that to invest.

Do you understand, from a tax POV,  you can't simply redraw the $50k and make your loan $100,000 with the $50k in the offset

You have created a new piece of land so GST would be applicable when you first sell it. It is the buyer that pays it to you and you remit it to the ATO.

Probably wants 9% or under with no app fees!

But he wouldn't do so under his own name…….

Think about the future – what happens if you want to access equity?

Generally, you should only pay down investment debt after you have paid off all personal debt. This is because personal debt is not deductible but investment debt is. So if you were to pay PI on an investment loan while you had a home loan then you would be throwing money away by decreasing tax deductions. The extra repayments on the IP would be better spent paying down the home loan.

There is also the issue that some people will move out of their main residence later on and rent it out and then buy a new place to live in. If you were to do this, ie pay down your home loan to a low amount, then you would not have cash availble for the new main residence purchase. The end result could be a high non deductible loan with a low deductible loan which would mean you are paying tax on your rent and non-claimable interest on your new home. The way around this, partially at least, is to use IO with an offset on your main loan. Do not pay it down, but save all money in the offset – which will save you the same interest.

Since you never know what will happen in the future it may be a good idea to do this for your main residence loan now.

Yes, this would work (and i covered it in my post)

But you must ask what is the point in doing this?

Call again. or go there.

Not really – as that would not work.

The ATO would not allow that if the trust was a discretionary trust. You would be borrowing money and 'investing' (vague term!) into a trust – but the trustee may not give you a return as the nature of a discretionary trust is that the trustee has discretion to whom distributions are made. So there would be no commercial senses in borrowing and investing in something which you may not get a return from.

It would work with a unit trust as the trustee of a unit trust would give distributions in accordance with the units held. ie fixed entitlements. If you own 50% of the units you would be guaranteed 50% of the distributions. The trouble with a unit trust is it is fixed and therefore not flexible. You could have units owned by a discretionary trust, but then you would run into the same problem as above.

Another option is for you to borrow money and lend that money to your discretionary trust. But that would not work either because you would need to charge the trust interest, otherwise you could not justify claiming a deduction yourself. And you couldn't charge less interest than you are borrowing at as there is no commercial point in doing that and the ATO would disallow it.

If you borrow money and lend it at the same rate the net result is nil as they cancel each other out and the trust ends up with the deduction and a greater loss which you can't really use unless the trust has other income.