Don’t use Cash in Offset account to Invest Money in an offset account is cash. If you use cash to invest there is no interest to deduct. However where money is taken from an offset account the interest on the loan will increase but the interest will still not directly be deductible. There are 2 scenarios: 1. offset Main residence loan If the offset account is attached to the main residence any removal of the cash will cause the non-deductible interest on the loan to increase. This interest will not be deductible because the loan is associated with a private purpose - the purchase of the main residence. e.g. $500,000 home loan with an offset attached containing $100,000 will mean interest is only charged of $400,000. If the $100,000 cash is used to invest, then the interest will be charged on the full $500,000. This will mean approx $5000 per year in lost deductions ($100,000 x 5%). 2. Offset on an investment property loan With an offset attached to an investment property the situation is similar - withdrawing of the cash will not be using borrowed money so there is no interest to claim. But indirectly there will be because the interest on the investment loan will increase and the interest on this loan will be deductible against the investment property to which it relates. e.g. $500,000 loan with a $100,000 offset balance. Loan relates to the purchase of 123 Smith St. $100,000 cash is withdrawn to buy 456 Jones St. The interest on the loan for Smith St will increase by $5000 per year approx. The extra interest will be deductible against Smith St not Jones St. Does it matter whether you use offset cash from an investment loan or borrow? Immediately it won’t really matter. But longer term it will matter because if one property is sold there will be different consequences. Also there are advantages in borrowing as it will keep cash available for private expenses and will increase tax deductions if it is used for private expenses. Also there will be different consequences if properties have different owners. $100,000 withdraw from an investment property offset in the name of Spouse A v $100,000 borrowed by A and on lent to B. So think carefully before you go using offset account money.