HELP! -advice on capital gains tax on investment property please!

HI,

Im new here and thought i'd post a question. 
I own a (negatively geared ) investment property which has been rented out for 3 years.If i sold it as is today the capital gains made are minimal — around $50,000 -$100,000 before tax. I know if it was sold today I can use the discount method for calculating capital gains.

The house is in an old fibro shack and I know that if i knocked it down and built a brand new home and then sold, my capital gains would be of the order $400,000.   I understand that if I do rebuild for the purpose of selling straight away the, sale is no longer capital in nature, since it is a money making excercise and and any gains become assessible income and i will pay full income tax (i.e. no discount method for calculating gains).

I know that if i rebuilt and then rented for a further 12months, then after 12 months I could then use the discount method once more to calculate the gain.  However I would rather not hold onto the property for that long .

I was thinking though, that i could move into the new house for a minimal amount of time  – like 2 months – and then sell. so i would get a partial capital gains exemption for the time i lived there,and I would still beable to use the discount method for the remainder of o the gain.  But this seems too good to be true — ANd im sure its not that easy to get out of a huge tax bill.    ????

Also, It will take roughly 9 months to build and i will be paying bank interest on the property and construction costs. How do i treat these interest expenses? can i use  this interest as  a deduciton for the capital gains calculation at the end? It seems a bit tricky , since the interest incurred during this time is due to me building a main dwelling and not linked to the income derived on the property previously when it was rented out , so is that interest claimable?

Hope I've made sense, and hope someone can shed some light !

thanks  in advance

josie