Ignore the american spam above

Firstly, you need to understand some simple tax concepts to really understand IO loans. It is simple, but often overlooked.
Your own home loan is not deductible, while a investment loan is deductible. There are benefits to be gains by paying the home loan down asap – you save interest which you cannot claim a deduction on. So there is not point in paying down a loan on an investment while you still have a home loan – you will be losing money.

The main reason in using an IO loan is to pay off non-deductible debt first.

Assuming you have paid off your home loan already, the payments on an IO loan are lower. This gives you a few benefits. Less cash out of your pocket means you can afford more investments. eg you may put the extra into shares, or buy another property. Properties are often negative cashflow in the begining but this will change as rents increase so after 5 years your loan may change to PI resulting in higher repayments but the extra rent may cover this.

There is also an additional tax reason to keep all loans IO and that is once you pay down a loan the money is gone -it is a repayment. If you suddenly need some cash and redraw the extra repayments, the extra interest incurred will only be deductible if it is used for investment purposes. So you may start off with a $500,000 loan, and pay this down to $1 over 10 years, then decide you want to buy a Ferrari and withdraw the money – the interest claimable will only be on $1, despite you having a loan of $500,000. If you had an IO loan, and used a 100% offset account for the extra deposits all the interest would be deductible.
Same effect as paying down the loan, but more tax effective.

There is no real reason to pay down a loan ever, if you qualify you can keep extending the IO period when it expires.

Imagine if you purchased a house in sydney for $16,000 in 1960 with an IO loan and kept it IO all the way. Your annual rent would be more than the origina loan now.

Sorry for rambling on!!!!

Did you notify the other party you were withdrawing and was this notification in writing and given before the cooling off period expired? If you signed a contract you are bound by it, but may pull out within the cooling off period.

Look at using the trust – assuming it is not involved with the business.

I am not a tax advisor, but know that redrawing from a loan means 'borrowing'. So this can creat big problems later on if the interest on the loan is ever claimed.

Using an IO loan with a 100% offset is a way to avoid this.

Yes, it is common for IPs to cost money initially. But the idea is that they will be growing in value more than they will cost you. (not always the case though).

Have you conisdered setting up your loans so you could borrow this shortfall so that it is not taking money away from paying off your PPOR?

It is pretty hard to get a personal loan too. Much easier to get the much larger home loan.

With sole traders, income and expenses are just added to other income. same with property. All income is added up and all expenses deducted. But the ATO is wary of business that run at a loss.

probably capital works. You should get a depreciation scedule done as it sounds like you don't have one. you could be missinh out on thousands in other deductions.

It is called the equity access loan
http://westpac.com.au/internet/publish.nsf/Content/PBHLRF+Home+Loans+Fees+and+Charges

You will need to convey the title into the new owners name. So you will need a coneyancer or solicitor to do this.

You may also want to consider the tax consequences, if any -maybe also pension consequences.