Debt Recycling
Calculator
See exactly how much tax you'll save and wealth you'll build by converting your non-deductible home loan into investment debt — year by year.
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Year-by-Year Projection
Estimates only. Returns are not guaranteed.
| Period | Home Loan | Invest Debt | Portfolio | Net Worth |
|---|---|---|---|---|
| Year 1 | $531,784 | $53,117 | $57,617 | $-527,283 |
| Year 2 | $512,072 | $56,599 | $66,284 | $-502,386 |
| Year 3 | $490,723 | $60,496 | $76,147 | $-475,072 |
| Year 4 | $467,580 | $64,864 | $87,368 | $-445,075 |
| Year 5 | $442,468 | $69,766 | $100,133 | $-412,101 |
| Year 6 | $415,194 | $75,273 | $114,652 | $-375,815 |
| Year 7 | $385,542 | $81,467 | $131,165 | $-335,844 |
| Year 8 | $353,272 | $88,440 | $149,943 | $-291,769 |
| Year 9 | $318,116 | $96,299 | $171,297 | $-243,118 |
| Year 10 | $279,776 | $105,163 | $195,577 | $-189,361 |
Portfolio Growth vs Total Debt
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What is Debt Recycling?
Debt recycling is a legal Australian tax strategy that converts non-deductible home loan debt into tax-deductible investment debt — without increasing your total borrowings. The result is a lower after-tax cost of debt, faster mortgage paydown, and a growing investment portfolio built with borrowed money.
The strategy works because interest on money borrowed to invest in income-producing assets (shares, ETFs, property) is generally deductible against your taxable income under Section 8-1 of the ITAA 1997. Interest on your home loan, by contrast, is not deductible — because your home is not an income-producing asset.
How does it work step by step?
Step 1 — Redraw or split. You draw equity from your home loan (or use an offset balance) and invest it in shares or ETFs. This portion of your loan is now investment debt — and the interest is deductible.
Step 2 — Dividends redirect. Income earned on your investments (dividends, distributions) is used to make additional repayments on your home loan, reducing the non-deductible balance faster.
Step 3 — Rinse and repeat. As your home loan reduces, you redraw again and invest again. Over time, you replace non-deductible debt with deductible debt while simultaneously growing your portfolio.
Who is debt recycling suited to?
Debt recycling works best for high income earners on the 37% or 45% marginal tax rate (plus Medicare levy), as the tax deduction on investment interest is worth more at higher rates. You also need an existing mortgage, some equity or offset savings, a long time horizon (typically 7–15+ years), and comfort with investment market risk.
It is not appropriate for people with variable income, those close to retirement, or those uncomfortable holding investments through market downturns while still carrying mortgage debt.
Is debt recycling legal in Australia?
Yes. Debt recycling is a well-established strategy and the ATO has confirmed the interest deductibility of borrowings for income-producing investments provided the nexus between the borrowing and the investment is clearly maintained. A correctly structured split loan is essential — commingling funds defeats the deductibility argument.