Debt Recycling
Turning non-deductible home loan debt into tax-deductible investment debt — slowly.
What is Debt Recycling?
Debt recycling is a wealth-building strategy that gradually converts non-deductible home loan debt into tax-deductible investment debt. You use extra repayments or available redraw/offset to fund an income-producing investment (shares or property) — so the debt keeps the same total, but its tax character shifts.
How it works in practice
Typical setup: a main home loan, an offset account, and a separate split sub-account for investment. As you build savings, you redraw from the home loan to invest — the interest on that portion becomes deductible against the investment income. Over 10–20 years, a six-figure home loan can be fully "recycled."
Why it matters for you
Done right, debt recycling can compound into meaningful wealth — and tax benefits. Done wrong (mixing deductible and non-deductible debt, sloppy record-keeping), the ATO can disallow deductions. Requires a clean loan structure and coordination with an accountant.