29+ Years advising Australians
6,000+ Clients across the country
$2.5B Funds under advice
6 Offices nationally
How it works
Two goals.
One strategy.
Debt recycling works on a straightforward principle: the interest on money borrowed to invest in income-producing assets is tax-deductible in Australia, while the interest on your home loan is not. The strategy involves making additional repayments on your home loan to reduce the non-deductible principal, then immediately redrawing that same amount to invest in a diversified portfolio. Over time, the non-deductible home loan debt shrinks, the tax-deductible investment debt grows, and an investment portfolio accumulates — simultaneously. The tax deductions generated by the investment debt reduce your effective cost of borrowing, and the investment returns and distributions further accelerate the cycle. Done consistently over many years, the compounding effect can be substantial.
In practice, the strategy requires a loan structure that allows it to work cleanly. Typically this involves splitting your home loan into two facilities: a principal-and-interest loan for the existing mortgage, and a separate interest-only facility for the investment component. This split is essential for maintaining clean ATO documentation — it must be clear which interest relates to which loan purpose. The investments selected need to be income-producing to generate the distributions that feed back into the home loan repayments, and ideally diversified enough to manage volatility over the long horizon that debt recycling requires. Every component — the loan structure, the investment selection, the tax treatment — needs to be set up correctly from the start.
This is a strategy that demands discipline, the right starting conditions, and ongoing coordination between your financial planner and your accountant. The tax deductibility claims must be documented and reported correctly each year. The investment portfolio needs periodic review. The cash flow must be sufficient to sustain additional repayments without creating stress. For the right client, the rewards are significant — but it is not a set-and-forget approach. At AGS, our financial planning and accounting teams are under the same roof, which means the coordination that debt recycling requires is built into how we work — not an afterthought.
What we cover
Debt recycling areas we advise on
How debt recycling works
A clear explanation of the mechanism — from additional mortgage repayments through to redraw, investment, and tax deduction — so you understand exactly what you're implementing and why.
Loan structure & split setup
Coordinating with your lender or our mortgage broking team to establish the correct split loan structure that cleanly separates deductible and non-deductible debt for ATO purposes.
Investment selection
Selecting appropriate income-producing investments — typically diversified share portfolios or managed funds — suited to the long time horizon and cash flow needs of the strategy.
Tax deductibility
Ensuring the investment loan interest is correctly documented, the purpose test is clearly satisfied, and all tax claims are lodged accurately — coordinated between our financial planning and accounting teams.
Cash flow management
Modelling your cash flow to confirm the strategy is sustainable over the long term — including stress-testing for interest rate changes, market movements and income variability.
Financial planner & accountant coordination
Because debt recycling straddles financial advice and tax, having both disciplines under one roof at AGS means the strategy is implemented, reported and reviewed as a single coherent plan.
Who this is for
Debt recycling may suit you if you are…
- A homeowner with an existing mortgage and some surplus cash flow each month
- In a relatively high marginal tax bracket where deductible interest generates meaningful savings
- Disciplined enough to maintain the strategy consistently over a long time horizon
- Wanting to build an investment portfolio while simultaneously paying down your home loan
- Currently directing surplus cash solely into non-deductible mortgage debt with no investment accumulation
- Looking for a tax-effective wealth building strategy that your accountant and financial planner can coordinate together
Could debt recycling work for your situation?
Book a conversation with an AGS financial planner to model the strategy against your income, mortgage and cash flow position.