Taking money from an offset account on an IP and Deductibility of Interest Example Tom borrowed $400,000 to purchase an investment property. He set up the loan as interest only and has an offset account attached. Tom rents elsewhere. He keeps his savings on the offset account and has manage to build the balance up to $300,000. Currently he only pays interest on $100,000 of the investment property loan, @ 5% pa this is approx. $5,000 per year in interest. All deductible. But when he withdraws $300,000 to buy his new main residence the interest on the investment loan will jump up because the money is removed $400,000 x 5% = $20,000 per year in interest. Will the interest on the full $20k be deductible? Yes it will, because by using the offset Tom has not paid the loan down. There have been no deposits into the loan account at all, other than the interest payments. This is why it can be a good idea not to pay into a loan, but to use an offset account to store cash. Bankers will tell you redraw and an offset is the same thing, but they are totally different from a tax perspective – even though they may save you the same interest. Here is a PBR which confirms this. Private Ruling Authorisation Number 85315 RBA Content | Australian Taxation Office See Taxation Ruling TR 93/6 https://www.ato.gov.au/law/view/pdf/pbr/tr1993-006.pdf @newbie property is money withdrawn from home loan offset acc to buy investment property tax deductible?