need advise: cash in equity through loan?

not a good idea to borrow cash and put it in an offset account as you could lose the deductibility of interest.

best to set up a LOC or an IO loan that you can draw down when needed.

Unless your mortgage broker is also a tax agent or a lawyer, they are not qualified to give tax advice.
s 8-1 ITAA97 will allow interest to be deductible where funds are borrowed to use to investment property acquistition. If you borrow and place that money into an offset account, there is no connection to the investing.

If you later use that money you could argue that there is a connection and therefore that the interest should be deductible. But where you have borrowed in May16 and use the funds in say Feb17 there is a long gap between borrowing and investing. Can you still claim the interest – maybe, but you should apply for a private ruling to find out.

Also where the borrowed money is parked in the offset account and you already have money in the account, or you place other money in it later on then you will definitely have problems because the borrowed money is mixed with non borrowed. When you subsequently use the offset money to invest you cannot say you are using solely borrowed money, so at best only a portion of the interest will be deductible.

My advice, as a tax lawyer and a broker, is to
1. Use a IO loan where you can borrow to pay back into the loan and then later redraw when needed.

If you cannot, then

2. Use a LOC. Once this is drawn down convert this to a IO loan.

If you cannot, do either, change banks

3. Use a IO loan with an offset. Borrow money and park in the offset and then repay the loan before reborrowing and using. This way the borrowing should occur when you need the money for investing.
Not ideal, but a work around solution.

4. Least recommended is the borrowing and parking in a 100% offset account. But never put any other money in this account – ever.
If you want to do this I suggest a private ruling be applied for.