Debt recycling converts non-deductible home loan interest into deductible investment debt — building wealth while reducing your mortgage.
The strategy works by systematically replacing your non-deductible home loan with an investment loan carrying the same balance. Because the new debt is used to buy income-producing assets, the interest becomes tax-deductible.
Use surplus cash or offset funds to reduce your mortgage principal, creating redraw capacity.
Redraw the same amount and invest it in income-producing assets — shares, ETFs or managed funds. This must be kept as a separate loan split.
The interest on the investment portion becomes tax-deductible. Repeat the process over time and more of your debt becomes deductible.
Debt recycling suits people with stable income, surplus cash flow, and a long-term investment mindset. It's not for everyone — if cash flow is tight or investment volatility is a concern, it may not be appropriate.
The loan structure must be set up correctly from the start. A single mixed-purpose loan can void the tax deductibility entirely. Records need to be maintained carefully, and the ATO requires the investment purpose to be clear and genuine.
When done right, it's a legitimate and effective strategy. The first step is assessing whether it suits your specific situation.
Book a free call — we'll assess your situation and let you know if debt recycling makes sense.
General information only. This page does not constitute personal tax or financial advice. Outcomes depend on individual circumstances and current Australian tax law. Seek advice specific to your situation before implementing any strategy. ChadTax — ABN 94 286 730 899, Registered Tax Agent No. 26297470.