Loan structures, tax deductions and CGT

Hi, 

I am new to the forum and have been trying to find some answers to some questions I have about my situation. So far this is what I have gathered on my situation and wondering if anyone could provide their opinon on whether I am right or on wrong path?

So the situation is:

Property 1 – Owned soley by my partner. Worth $450K, Loan $330K. He bought this as a PPOR in 2006 with his (now ex-) wife. They split, he paid her out in 2009.

In 2011, he moved from his PPOR to be closer to work (and me). We have rented places for us to live since. He has used his PPOR to produce a rental income. He changed the loan to IO when he moved out in 2011.

My understanding is this property falls under the 6-year CGT exemption rule until there is another PPOR?

Property 2 – Bought as an investment property in 2012, owned 50/50 by myself and my partner. We paid deposit and costs with savings and loan is IO. Will always be an IP.

Property 3 – We are looking at using 70K equity in Property 1 (PPOR) plus 24K savings to purchase a property for $640K. In order for us to afford it, the property will be bought as/ initially an IP (likely 12 months) while we continue to rent cheaply. I wanted to get a IO loan with an offset account to keep our options open later down the track if we wanted to turn into an IP and get another PPOR. My understanding is:

• The interest on loan for 70K equity and LMI (1/5) will be tax deductible only while Property 2 is a IP.
• The interest on loan on Property 2 and LMI is tax deductible while Property 2 is IP.

Once we move into Property 2 as a PPOR:

• PPOR CGT exemption starts on that and ceases on Property 1 (Property 1 becomes IP and subject to CGT).
• The interest on loan for 70K equity and LMI 4/5 will no longer be tax deductible now Property 2 is PPOR. The tax deductible interest on the now IP Property 1 will only ever be on the $330K original loan.

I was now wondering once all this is done – later down the track when as equity builds up in the three properties, can you take out LOCs on these and use the funds to pay property expenses AND IP INTEREST? (to free up cash to put into Property 3 PPOR loan off-set account) or can you only use such borrow funds to pay property expenses?

I think that was it. Am I on the right track or is their something majorly silly we are doing in terms of tax etc?

Thanks for your help