Finance & property Australia
Debt Recycling Calculator
Debt recycling does not reduce your debt. It changes the character of it — turning non-deductible home loan debt into deductible investment debt, one repayment at a time. The benefit is the deduction; the risk is that you stay fully geared throughout.
Free, no signup Runs in your browser
Paid down, then re-borrowed to invest
Total return before tax
The taxable part; the rest is growth
Net position change
—Deductible debt created
—
Portfolio value
—
Total debt
—
Cumulative tax effect
—
Year by year
Working with a different rate? Edit the rates this calculator uses
These are the figures we verified on 2026-10-28. Change them to work with a historic period, or with a new rate that has been announced but which we have not published yet.
Defaults to the $135,001–$190,000 bracket: 37% plus the 2% Medicare levy. Set your own bracket — rates for 2026–27 are 15%, 30%, 37% and 45% before the levy
General information, not advice. General information only, not financial advice. Debt recycling keeps you fully geared while converting debt, so a market fall and a rate rise can arrive together with the whole loan still outstanding. The deductibility of interest depends on the borrowed funds being genuinely used to produce assessable income, and mixing purposes in one loan account can jeopardise the deduction entirely. Speak to a licensed adviser and a registered tax agent before starting.
What is debt recycling?
Paying down non-deductible home loan debt, then re-borrowing the same amount through a separate split to invest. The debt total stays the same, but interest on the new split is deductible because the borrowed money produces assessable income. At a 39% marginal rate, $10,000 of interest moved across is worth about $3,900 a year.
Tax law changes that affect this strategy
Interest on money borrowed to buy shares or other income-producing investments is generally deductible if you can reasonably expect to earn assessable income from them, and only for the part of a loan that funds the investment. That rule has not changed. What changes from 1 July 2027 is the tax on the gain when you sell: the 50% capital gains tax discount is replaced with cost base indexation and a 30% minimum tax rate for gains that accrue after that date, which the ATO says is now law. The negative gearing limit announced in the same Budget applies to residential property, not shares.
The calculator uses the tax rules in force today.
Why the loan must be split
The deduction depends on the *purpose* the borrowed money was put to, and purpose is traced through the loan account.
If investment borrowings and personal borrowings share one account, the interest is mixed and apportioning it becomes difficult — and repayments are generally applied across the whole balance rather than to the part you would prefer. That can compromise the deduction entirely.
The standard structure is a separate loan split used exclusively for investment, with nothing else ever drawn against it. Never redraw from it for a personal expense; that single act contaminates the split and the deduction attached to it.
This is a structuring matter to get right before the first dollar is drawn, not something that can be tidied up later. It is the most common way the strategy fails on a technicality rather than on the numbers.
What has to go right
Three things, and none of them is guaranteed.
The investment has to produce assessable income, or the interest is not deductible. A portfolio held purely for capital growth with no income does not support the deduction in the way this model assumes.
The return has to exceed the after-tax cost of the debt over the period. At 6.1% interest and a 39% marginal rate, the after-tax cost of deductible debt is about 3.7% — the portfolio has to beat that, after its own tax, to be worth doing.
And you have to hold through the falls. The strategy converts debt steadily whether markets are up or down, and its worst case is a sustained fall arriving while the full loan is still outstanding.
How this is calculated
Each year, an amount moves from the non-deductible side to the deductible side, and the deduction follows it.
each year:non-deductible balance −= amount recycleddeductible balance += amount recycledportfolio = (portfolio + amount recycled) × (1 + return)deductible interest = deductible balance × loan rateinvestment income = portfolio × income yieldtax effect = (deductible interest − investment income) × marginal ratetotal debt stays constant — only its character changes
The tax effect is netted against the investment income the portfolio produces, because that income is assessable. A portfolio yielding more than the loan costs turns the position tax-positive and the deduction stops being a saving at all — which is why the yield field is separate from the total return.
Total debt does not fall. That is the point of the strategy and also its risk: you remain fully geared for the whole period, holding a portfolio bought with borrowed money.
A worked example: ten years at $30,000
A $600,000 home loan at 6.1%, recycling $30,000 a year for ten years, with a 7% total return of which 3.5% is income, at a 39% marginal rate.
- Recycled over ten years$300,000
- Deductible debt at year 10$300,000
- Non-deductible remaining$300,000
- Total debt$600,000 — unchanged
- Deductible interest, final year$18,300
- Cumulative tax savedsee the result above
The debt total is identical after ten years. What changed is that half of it now generates a deduction.
The portfolio built alongside it is the actual return on the strategy. The tax saving reduces the cost of holding it; it does not by itself make anyone better off.
Who this suits, and who it does not
The benefit scales with the marginal rate, so it favours higher earners — the same deduction is worth 45 cents in the dollar to one person and 19 to another.
It also requires genuine surplus cash flow. Recycling only works if you were going to pay down the loan anyway; borrowing more to fund the recycling is a different and much riskier strategy wearing the same name.
And it needs a long horizon. Over five years the outcome is mostly determined by which five years they were. Over twenty, the arithmetic has room to work.
If the mortgage would not otherwise be paid down faster than required, the honest comparison is not recycling against nothing — it is recycling against simply investing the same surplus without touching the loan at all.
What this calculator does not do
- Assumes a constant return, which no market delivers
- Assumes the loan is correctly split and the deduction holds
- Ignores brokerage, franking credits and capital gains tax on eventual sale
- Uses one marginal rate throughout, ignoring bracket changes over the period
- Does not model interest rate changes over the projection
- Capital gains are not modelled; the CGT discount is replaced for gains accruing after 1 July 2027
Common questions
What is debt recycling?
Paying down non-deductible home loan debt and re-borrowing the same amount through a separate split to invest. The total debt is unchanged; the interest on the new split becomes deductible because the money produces assessable income.
Does debt recycling reduce my debt?
No. That is the most important thing to understand about it. It changes the character of the debt, not the amount — you remain fully geared throughout.
Why does the loan need to be split?
Because deductibility is traced through the purpose of the borrowing. Mixing investment and personal borrowings in one account makes apportionment difficult and can compromise the deduction entirely.
Is debt recycling worth it?
It depends on your marginal rate, the gap between the loan rate and the investment return, and whether you can hold through a downturn. At a low marginal rate with a modest return gap, the benefit may not justify the risk.
What is the main risk?
Staying fully geared. A sustained market fall arriving while the whole loan is still outstanding is the scenario the strategy is least able to absorb, and it is the one worth stress-testing before starting.
Where these numbers come from
- Australian Taxation Office — interest, dividend and other investment income deductions When interest on borrowed money is deductible
- Moneysmart — borrowing to invest Australian Government guidance on gearing and its risks
- Australian Taxation Office — tax reform: negative gearing and capital gains tax States that the measures are now law and apply from 1 July 2027 (page updated 29 June 2026)
Rates last verified 2026-10-28 Every figure the Australian Taxation Office sets is re-checked against the source at least once a year, and again whenever a change is announced. Out of date? Tell us and we will fix it.
Related AU calculators
Investment property
Rental cash flow before and after tax, both yields, and the gearing position.
Open calculator Finance & propertyCapital growth
Future value at an assumed growth rate, with the real return after inflation.
Open calculator Finance & propertyMortgage
Repayments, total interest, and what extra repayments actually save.
Open calculator Finance & propertySMSF loan
LRBA repayments and whether the fund's cash flow actually covers them.
Open calculatorAustralia · Finance & property